How are dividends received by an investor from equity shares or equity mutual funds taxed under the current Income Tax regime (post the abolition of Dividend Distribution Tax)?

[ A ]Taxable in the hands of the investor at their applicable income tax slab rate, subject to TDS under Section 393(1) of the Income-tax Act, 2025 (the erstwhile Sections 194/194K of the Income-tax Act, 1961) where the threshold is crossed[ CORRECT ]

[ B ]Fully tax-exempt in the hands of the investor

[ C ]Taxed at a flat concessional rate of 10% regardless of the investor's income slab

[ D ]Taxed only if the dividend received in a year exceeds Rs. 10,00,000

Takeaway

Option A is correct: dividends are taxable in the investor's hands at their slab rate, subject to TDS under Section 393(1) of the Income-tax Act, 2025 (the erstwhile Sections 194/194K of the Income-tax Act, 1961).

Derivation

The Finance Act, 2020 abolished Dividend Distribution Tax (DDT), which until then was paid by the company or mutual fund before distributing dividends. From FY 2020-21 onward, the entire dividend amount is instead added to the investor's total income and taxed at their applicable slab rate. Companies and mutual funds deduct TDS on dividends under Section 393(1) of the Income-tax Act, 2025 — which now consolidates what were separate Sections 194 (companies) and 194K (mutual funds) under the erstwhile Income-tax Act, 1961 — if the dividend paid to a resident individual exceeds Rs. 10,000 in a financial year (raised from Rs. 5,000 by the Finance Act, 2025, effective FY 2025-26), but the ultimate tax liability is always computed at the investor's own slab rate, not a flat rate.

Why the others fail

B — Fully tax-exempt in the hands of the investor

Dividend income has not been tax-exempt in investors' hands since the Finance Act, 2020 shifted dividend taxation from the company/fund to the individual recipient.

C — Taxed at a flat concessional rate of 10% regardless of the investor's income slab

Dividend income is added to the investor's total income and taxed at their own slab rate — it does not carry a flat concessional rate like Section 198 long-term capital gains.

D — Taxed only if the dividend received in a year exceeds Rs. 10,00,000

The Rs. 10,00,000 threshold applied under the erstwhile Section 115BBDA, which stood withdrawn once dividend taxation shifted fully to the investor's slab rate from FY 2020-21.