What are Dividends

Dividends are payments you may receive when you own shares in a company. They let you earn money from your shares without selling them. However, not every company pays dividends, and the amount can change.

• Your dividend depends on the shares you own
• Companies decide how much dividend to pay
• Dividend payments are not fixed or assured
• Share prices may fall after dividend payments
• Dividend yield helps compare annual dividend income
• Dividend income may attract applicable income tax

A dividend is a distribution made by a company to its shareholders, generally from profits or retained earnings, subject to applicable law and approval requirements.

You normally receive the dividend according to the number of eligible shares you hold.

Simple example

Suppose a company declares:

Dividend per share: ₹8

You hold:

100 shares

Your gross dividend is:

₹8 × 100 = ₹800

This ₹800 is separate from any gain or loss caused by changes in the market price of your shares.

A company may also decide to retain profits instead of distributing them.

Therefore, owning shares does not guarantee that you will receive a dividend.

Dividends can take different forms depending on the company's decision and applicable rules.

1. Cash dividend

A cash dividend gives shareholders money.

Suppose a company declares: ₹10 per share

You own 200 shares

Gross dividend ₹10 × 200 = ₹2,000

2. Stock dividend

A stock dividend involves distributing additional shares instead of cash, where such a structure is permitted.

For example, if a company gives one additional share for every 10 shares held, an eligible shareholder with 100 shares would receive:

3. Interim dividend

An interim dividend is declared before the company's final annual financial results are completed, subject to applicable corporate-law requirements.

4. Final dividend

A final dividend is generally recommended by the board and considered by shareholders in accordance with the applicable company-law process.

The exact dividend form, approval process, and payment terms depend on the company and applicable law.

Calculate your gross dividend by multiplying the dividend per share by the number of eligible shares you hold.

Dividend income = Dividend per share × Eligible shares held

Example

Dividend per share: ₹6

Eligible shares: 500

Gross dividend: ₹6 × 500 = ₹3,000

If you hold different quantities across several companies, calculate the dividend from each holding separately and then add them.

Dividend per share, or DPS, shows how much dividend is attributable to each eligible share.

A simplified formula is:

Dividend per share = Total equity dividend ÷ Number of eligible equity shares

Suppose a company distributes ₹2 crore

to eligible equity shareholders and has:

20 lakh eligible shares

DPS: ₹2 crore ÷ 20 lakh = ₹10 per share

The dividend should not be calculated by simply dividing a company's total profit by the number of shares. Profit and dividend are different figures.

Dividend yield shows the annual dividend relative to the current market price of a share.

The formula is:

Dividend yield = Annual dividend per share ÷ Market price per share × 100

Example

Annual dividend per share:

₹20

Current market price:

₹500

Dividend yield:

₹20 ÷ ₹500 × 100 = 4%

This means the annual dividend equals 4% of the current share price in this simplified calculation.

No. A dividend yield can rise because:

• the company increased its dividend, or
• the market price of the share fell.

Suppose annual dividend remains: ₹20

but the share price falls from ₹500 to ₹250.

Dividend yield becomes:

₹20 ÷ ₹250 × 100 = 8%

The yield doubled even though the company did not pay a larger dividend.

So dividend yield should be read together with earnings, cash flow, debt, dividend history, and other company information.

Dividend income is generally taxable in the hands of the shareholder under the applicable income-tax rules.

The earlier Dividend Distribution Tax system was abolished from 1 April 2020, after which dividends became taxable in shareholders' hands.

From 1 April 2026, the Income-tax Act, 2025 governs current TDS provisions.

For dividend paid by a domestic company to a resident, Section 393 specifies a general TDS rate of: 10%

subject to applicable conditions and exceptions.

The Income Tax Department also states that dividend income is generally taxable at the normal rate applicable to the taxpayer. The tax treatment can differ according to factors such as residential status and the nature of the recipient.

Can you deduct expenses against dividend income?

The Income Tax Department states that only eligible interest expenditure incurred to earn dividend income may be deductible, subject to a ceiling of 20% of total dividend income under the applicable rules. Other expenses such as commission or remuneration for realising the dividend are not generally deductible under this provision.

Source: Income Tax Department, Ministry of Finance, Government of India

The key dates help determine which shareholders are eligible to receive a declared dividend.

Declaration date

This is the date on which the company announces the dividend according to the applicable approval process.

Record date

The record date is used to identify shareholders eligible for the corporate action.

Ex-dividend date

A share trades ex-dividend when a buyer purchasing on or after the applicable ex-date does not receive the declared dividend connected with that record date.

Payment date

This is when the dividend is paid or credited to eligible shareholders.

The exact dates are announced through the company's corporate-action disclosures and applicable stock-exchange processes.

A share price can adjust around a dividend, but you should not assume it will fall by exactly the dividend amount.

Consider a simplified case.

Share price before the stock becomes ex-dividend:

₹500

Dividend:

₹10 per share

In theory, the removal of the ₹10 dividend entitlement can put downward pressure on the share price.

However, the actual market price also depends on:

• demand and supply,
• company news,
• financial results,
• broader market movement,
• economic conditions, and
• investor expectations.

Therefore ₹500 − ₹10 = ₹49 is a useful conceptual illustration, not a guaranteed next market price.

A dividend is not free money added on top of an unchanged share value.

No. Equity dividends are not guaranteed merely because a company paid them in the past.

A company may:

• increase its dividend,
• reduce its dividend,
• skip a dividend, or
• stop paying dividends.

The decision can depend on:

• profits,
• available cash,
• debt,
• capital expenditure,
• future business plans,
• reserves, and
• applicable legal requirements.

Simple example

Suppose a company earned ₹100 crore

It could distribute part of this amount to shareholders.

It could also retain more of the money to:

• build a new plant,
• repay debt,
• fund acquisitions, or
• maintain cash reserves.

A previous dividend therefore does not promise the same dividend in a later year.

This is why dividend history should not be treated as a guaranteed future return.

Check whether the company can support the dividend rather than looking only at the dividend percentage.

Example

Company A:

• Annual dividend: ₹10
• Share price: ₹100
• Dividend yield: 10%

Company B:

• Annual dividend: ₹10
• Share price: ₹250
• Dividend yield: 4%

Company A has the higher yield.

But that alone does not tell you whether Company A has:

• stronger earnings,
• lower debt,
• better cash flow, or
• a more sustainable dividend.

A dividend figure should therefore be one input, not the entire investment decision.