How to compute dividend tax on Zerodha

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Dividends received from Indian companies and equity mutual fund distributions have been fully taxable in the hands of the investor since the Finance Act 2020 abolished the Dividend Distribution Tax (DDT) and removed the exemption under section 10(34) and section 10(35). From FY 2020-21, all dividends are taxed at the investor’s applicable income tax slab rate under Income from Other Sources. This guide explains how to identify dividend income from Zerodha Console and Zerodha Coin, compute the tax, and report it correctly in ITR.

Pre-FY 2020-21

Before 1 April 2020, companies paid Dividend Distribution Tax (DDT) and dividends were exempt in the hands of investors up to Rs 10 lakh per year (section 10(34)), with a 10% tax above Rs 10 lakh under the now-repealed section 115BBDA.

Post-FY 2020-21 (current)

From 1 April 2020:

  • Section 10(34) (equity dividend exemption) is repealed.
  • Section 10(35) (dividend from UTI/mutual fund) is repealed.
  • DDT is abolished.
  • Dividends are fully taxable at the investor’s slab rate under Income from Other Sources (section 56).
  • Companies deduct TDS at 10% under section 194 if aggregate dividend to a shareholder exceeds Rs 5,000 in a financial year.
  • Mutual fund distributions (growth plans have no dividend; only dividend or IDCW plans issue distributions) are similarly taxable.

Deduction under section 57

Section 57(i) allows a deduction for interest on money borrowed to invest in shares and mutual funds, but the deduction is capped at 20% of the dividend income from that investment. No other expense is deductible against dividend income.

Sources of dividend income in Zerodha

1. Equity shares held in Zerodha demat (CDSL)

Dividends from listed companies are directly credited to the bank account linked to your demat account. Zerodha’s Console does not always show the dividend amount on the Tax P&L page (because dividend credit happens at the depository level), but it may show a summary for reference.

2. Mutual fund distributions via Zerodha Coin

If you hold dividend (IDCW) plans of equity or debt mutual funds through Zerodha Coin, distributions are credited to your bank account and appear in the Coin section of Console.

Step-by-step procedure

Step 1: Download the Tax P&L from Console

Log in to console.zerodha.com. Navigate to Reports → Tax P&L and select the financial year 2024-25. The Tax P&L page may show a Dividends section summarising dividend income received through the Zerodha demat account during the year. Download the CSV if available.

Note: because dividend credits happen at the depository level and are directly transferred to your bank account, the completeness of the dividend data on Console depends on the reporting from CDSL. Use the AIS as the authoritative source.

Step 2: Download and review AIS

The Annual Information Statement (AIS) on the income tax portal is the most reliable source for dividend income. It aggregates dividend data reported by companies under their TDS statements (Form 26Q) and by mutual fund houses under AMFI reporting.

  1. Log in to incometax.gov.in.
  2. Navigate to e-File → AIS.
  3. Scroll to the Dividend section (Part B of AIS, section SFT-015 or the dividend sub-category).
  4. The AIS shows company-wise dividend amounts and TDS deducted.

Download the AIS PDF or JSON export.

Step 3: Download Form 26AS

Download Form 26AS from the income tax portal (under e-File → Income Tax Returns → View Form 26AS, or via TRACES). Check:

  • Part A: TDS deducted under section 194 (dividend from domestic company) and section 194K (dividend from mutual funds) by each payer.
  • The amounts here must match the TDS credited in your bank statement.

If TDS appears in Form 26AS but not in AIS, or vice versa, flag the discrepancy to your CA.

Step 4: Reconcile sources

Compare three sources:

SourceWhat it shows
Zerodha Console Tax P&LDividend summary as reported through Zerodha demat
AIS (dividend section)Company-wise dividend; income reported by companies to ITD
Form 26AS Part ATDS deducted on dividend under section 194

If you hold shares at multiple demat accounts (e.g., Zerodha + HDFC Securities), the AIS consolidates dividends from all holdings. The Console figure may be partial.

Step 5: Compute net taxable dividend

Total dividend income = Sum of all dividends from AIS
Less: Interest deduction under section 57(i) = min(interest paid on investment loans, 20% of total dividend)
Net taxable dividend = Total dividend income - Interest deduction

If you have not borrowed any funds to invest in shares (which is the case for most retail investors), the interest deduction is nil and the net taxable dividend equals the gross dividend.

Example:

  • Total dividend income: Rs 45,000
  • Interest paid on share purchase loan: Rs 12,000
  • 20% cap: Rs 45,000 × 20% = Rs 9,000
  • Deductible interest: min(Rs 12,000, Rs 9,000) = Rs 9,000
  • Net taxable dividend: Rs 45,000 - Rs 9,000 = Rs 36,000

Step 6: Enter dividend income in Schedule OS

In the ITR utility (ITR-1, ITR-2, or ITR-3 as applicable):

  1. Navigate to Schedule OS (Income from Other Sources).
  2. Under the dividend sub-head, enter the total gross dividend income.
  3. Under deductions, enter the allowable interest expense (if any) under section 57.
  4. The net amount flows to the income computation.

Step 7: Claim TDS credit

The TDS deducted by companies under section 194 appears in Form 26AS and AIS. In the ITR utility:

  1. Navigate to Schedule TDS / Schedule IT.
  2. The TDS deducted on dividends under section 194 is usually pre-filled in the online utility. In the offline utility, enter the BSR code, TDS certificate number, year of deduction, and amount from Form 26AS for each payer.
  3. The TDS credit reduces your final tax liability.

Step 8: Verify the tax computation

The dividend income is added to your total income and taxed at the applicable slab rate (not a special rate). For FY 2024-25 under the new tax regime:

  • Income up to Rs 3 lakh: nil
  • Rs 3 lakh to Rs 7 lakh: 5%
  • Rs 7 lakh to Rs 10 lakh: 10%
  • Rs 10 lakh to Rs 12 lakh: 15%
  • Rs 12 lakh to Rs 15 lakh: 20%
  • Above Rs 15 lakh: 30%

(Marginal relief and rebate under section 87A may apply; the utility computes these automatically.)

Mutual fund IDCW (Income Distribution cum Capital Withdrawal) plans

Dividends from mutual fund schemes are legally called IDCW (Income Distribution cum Capital Withdrawal) distributions after SEBI’s 2021 renaming. For tax purposes, IDCW from equity-oriented mutual funds is still treated as dividend income taxable at slab rates. TDS is deducted by the mutual fund house at 10% under section 194K if IDCW exceeds Rs 5,000 in the financial year.

Note that IDCW is not the same as the systematic withdrawal plan (SWP) or capital gains from redemption. IDCW is a distribution from the scheme and is different from redemption proceeds.

If you hold IDCW plans in Zerodha Coin, the IDCW credited to your bank account appears in the AIS under the dividend section. Cross-check the Coin statements downloaded from Console with the AIS entries.

Foreign dividends (if applicable)

If you hold foreign shares through the Liberalised Remittance Scheme or through US-listed ETFs, dividends from foreign companies are also taxable in India. TDS is deducted at source in the foreign country (typically 25% US withholding tax on US dividends). Foreign tax credit can be claimed under section 90/90A and double taxation avoidance agreements. This is a complex area; consult a CA.

What can go wrong

AIS vs Console mismatch: The AIS aggregates dividends reported by all payers; the Console figure may show only what passes through Zerodha’s demat records. Always use the AIS as the primary source.

Dividend from non-Zerodha demat accounts: If you have shares at another depository participant, those dividends will appear in AIS but not in Zerodha Console.

Forgetting IDCW from mutual funds: Investors in growth plans receive no IDCW. Investors in IDCW plans receive regular distributions. Verify your plan type for each mutual fund holding.

Missing TDS credit: If a company has deducted TDS but the TDS does not appear in Form 26AS, contact the company’s registrar to ensure timely TDS deposit. Without a Form 26AS entry, the TDS credit may be denied during assessment.

References

  1. Income Tax Act 1961, section 56, income from other sources; taxability of dividends from FY 2020-21.
  2. Income Tax Act 1961, section 57(i), deduction of interest expense against dividend income (20% cap).
  3. Income Tax Act 1961, section 194, TDS on dividend by domestic company at 10%.
  4. Income Tax Act 1961, section 194K, TDS on mutual fund IDCW at 10%.
  5. Finance Act 2020, repeal of section 10(34), section 10(35), and abolition of DDT.
  6. SEBI circular on IDCW nomenclature, April 2021.
  7. CBDT Notification, AIS framework under section 285BB; dividend reporting.
  8. Zerodha Console Tax P&L and Coin documentation, console.zerodha.com/reports/tax-pnl.

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