How to receive and reinvest a dividend on Zerodha
A dividend is a distribution of a company’s profits to its shareholders, typically declared by the board of directors and approved at the Annual General Meeting (AGM) or Extraordinary General Meeting (EGM). Dividends in India are paid in cash directly to the registered bank account of the shareholder; no action is required from the shareholder to receive a dividend.
Zerodha clients receive dividends automatically from the company’s Registrar and Transfer Agent (RTA) via NEFT/RTGS to the bank account linked to their Zerodha demat account. Zerodha does not charge any fee for dividend credit.
Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.
Prerequisites
- Shares of the dividend-declaring company held in the Zerodha demat account and settled before the ex-dividend date.
- Bank account linked to the Zerodha demat account (the same bank that was provided during account opening or updated subsequently via Console).
- No application or action is required to receive the dividend.
How a dividend is declared and paid
Types of dividends
| Type | Description |
|---|---|
| Interim dividend | Declared by the board during the financial year, before the accounts are finalised. |
| Final dividend | Declared at the AGM after the financial year closes and accounts are audited. |
| Special dividend | A one-time distribution from exceptional profits or asset sale proceeds. |
Board resolution and record date
- The board passes a resolution declaring the dividend per share (for example, Rs 5 per share).
- The resolution is disclosed to the exchanges immediately.
- A record date is set. Shareholders on the company’s register at the end of the record date receive the dividend.
- The ex-dividend date is the trading day on which the share trades without the right to the upcoming dividend. Under T+1 settlement, the ex-dividend date is the same as the record date (since shares bought on the ex-date settle on the next day, which is after the record date). Therefore, to receive the dividend, you must hold shares purchased on or before the trading day immediately before the ex-dividend date.
Price adjustment on ex-date
The share price theoretically decreases by the dividend amount on the ex-dividend date, because the value of the upcoming dividend no longer accrues to the buyer on and after the ex-date. This adjustment is reflected in the exchange’s reference price for circuit limit purposes.
Step-by-step: receiving a dividend on Zerodha
Confirm ex-dividend date: Check the NSE/BSE corporate action calendar or company announcements for the ex-dividend date and dividend per share amount.
Hold shares before ex-date: Ensure that shares are held and settled in the Zerodha demat account before the ex-dividend date. Under T+1 settlement, purchase shares at least one trading day before the ex-dividend date.
Wait for payment: Dividends are typically paid within 30 days of the declaration date (the Companies Act requires payment within 30 days of declaration; failure to pay attracts penalties under Section 127). Payment is made directly by the company’s RTA via NEFT/RTGS to your registered bank account.
Verify bank account: Dividends are credited to the bank account linked to your Zerodha demat account. Log in to Console > Settings to verify the linked bank account. If the bank account has changed, update it via Console and inform Zerodha’s support; however, the RTA uses the CDSL-registered bank for dividend credit, so updating Zerodha alone may not be sufficient, the demat bank mandate with CDSL must also be updated.
No credit via Zerodha account: Dividends are not credited to the Zerodha trading account balance; they go directly to the registered bank account. Do not confuse dividend receipts with the Console funds statement.
Check RTA records if dividend is delayed: If the dividend is not received within 35 days of the ex-date, contact the company’s RTA (not Zerodha) with your demat account number and the bank account details. The RTA can trace the payment. If the payment was returned (due to incorrect bank details), you can claim the unclaimed dividend from the company.
TDS on dividends
Under the Finance Act, 2020, dividends are taxable in the hands of shareholders (the dividend distribution tax regime was abolished). Companies deduct Tax at Source (TDS) before paying dividends:
| Resident shareholder | TDS rate | Threshold |
|---|---|---|
| Individual | 10% under Section 194 | If dividend in a year exceeds Rs 5,000 per company |
| Individual with PAN | 10% | Above Rs 5,000 |
| Individual without PAN | 20% | Any amount |
| Senior citizens (60+) | Same as above (no preferential rate for dividends specifically) | Same |
TDS certificate (Form 16A)
Companies issue Form 16A (TDS certificate) for dividend TDS deducted. The amount can be claimed as credit against your total income tax liability while filing the income tax return. If you are in the 20% or 30% tax bracket, you will pay additional tax on the dividend income above the 10% TDS already deducted.
Submitting Form 15G/15H
Individuals whose total taxable income is below the basic exemption limit (Rs 2.5 lakh for below 60 years; Rs 3 lakh for senior citizens) and who do not expect to pay tax can submit Form 15G (or Form 15H for senior citizens) to the company’s RTA to request that no TDS be deducted on dividends. This form must be submitted before the ex-dividend date for each company separately.
Tax treatment of dividends
Dividends received from Indian listed companies are taxable as income from other sources under the Income Tax Act, 1961, at the investor’s applicable tax slab rate (not as capital gains). Key points:
- No fixed flat rate; dividend income is added to total income and taxed at 5%, 20%, or 30% depending on the income slab.
- TDS at 10% is deducted by the company (subject to the Rs 5,000 threshold).
- Net (post-TDS) dividend is credited to the bank account; gross dividend is disclosed in Form 26AS.
- Dividend income is to be declared in the ITR under “Income from Other Sources.”
- Interest on investments in shares for earning dividends is deductible under Section 57(i) up to 20% of the dividend income (applicable to investors who borrow to buy shares).
Reinvesting dividends: options for Zerodha clients
India does not offer a formal Dividend Reinvestment Plan (DRIP) for listed equities (unlike mutual funds, which offer growth vs dividend options). Zerodha clients who wish to reinvest dividends must do so manually:
Manual reinvestment process
- Receive the dividend: The dividend amount is credited to your bank account.
- Transfer funds to Zerodha: Transfer the dividend amount from the bank account to the Zerodha trading account via UPI, NEFT, or bank transfer through the Kite or Console funds section.
- Purchase additional shares: Place a CNC (delivery) buy order on Kite for the same company’s shares (or any other company), using the transferred funds.
- Track the new purchase separately: Each purchase in the demat account has its own holding period and cost basis. Dividend reinvestment purchases are separate tax lots from the original holdings.
Mutual fund growth option as an alternative
Investors who prefer automatic compounding can invest in equity mutual funds (available through Zerodha’s Coin platform) under the growth option, which automatically reinvests dividends within the fund without distributing them to investors. This avoids manual reinvestment and defers taxation to the point of redemption. See Zerodha mutual funds on Coin for details.
SIP as systematic reinvestment
Some investors set up a Systematic Investment Plan (SIP) in an amount equal to the expected dividend income, using Zerodha Coin or Kite’s SIP facility. While not a true DRIP (as the timing depends on dividend payment and SIP date), this approximates systematic reinvestment.
Unclaimed dividends
If a dividend is declared but not collected by the shareholder within 7 years, it is transferred to the Investor Education and Protection Fund (IEPF), administered by the Ministry of Corporate Affairs. Shareholders can reclaim amounts from the IEPF by filing Form IEPF-5. The underlying shares may also be transferred to IEPF after 7 years of unclaimed dividends on those shares.
What can go wrong
Wrong bank account linked: Dividends are sent to the CDSL-registered bank account, not necessarily to the current bank account in Zerodha’s system. If you have changed banks, update both Zerodha and the CDSL bank mandate.
PAN not updated: If PAN is not registered with CDSL or the RTA, TDS is deducted at 20% instead of 10%. Ensure the PAN is updated in the demat account and with the RTA.
Dividend not received after 35 days: Contact the RTA directly (not only Zerodha) with your Folio/Demat account number. Zerodha is not the payment intermediary for dividends; the RTA initiates the NEFT/RTGS directly.
Related guides
- How to participate in a bonus issue on Zerodha
- How to participate in a rights issue on Zerodha
- Zerodha mutual funds on Coin
- Capital gains tax in India
References
- Income Tax Act, 1961, Sections 115-O (repealed by Finance Act 2020), 194, 57, 56(2)(i).
- Finance Act, 2020, abolition of DDT and taxation of dividends in shareholders’ hands.
- Companies Act, 2013, Section 127, timeline for dividend payment (30 days from declaration).
- Investor Education and Protection Fund (IEPF) rules, 2016, unclaimed dividend transfer and reclaim.
- SEBI LODR Regulations, 2015, Regulation 42, record date for dividends.
- Zerodha support documentation, bank account linkage for dividend credit.