What Is a Dividend?

A dividend is a reward a company gives to its shareholders from its profits.
This reward is often paid in the form of cash, but can also be given as bonus shares.

Simply put:

Dividend = Share of company profit distributed to shareholders

If you own the stock on the record date, you will receive the dividend.

Why Do Companies Pay Dividend?

 

Companies pay dividends to:

  • Reward shareholders

  • Build trust and attract long-term investors

  • Share profits that are not required for immediate growth

  • Create a positive market sentiment

Companies with stable profits (e.g., ITC, HUL, TCS) often pay regular dividends.

Types of Dividends

 

1. Cash Dividend

The most common. You receive money directly into your bank account.

Example:
If a company announces ₹10 dividend per share, and you hold 20 shares:
Dividend = 20 × ₹10 = ₹200

2. Final Dividend

Paid at the end of the financial year after results are declared.

3. Interim Dividend

Paid during the year (1–3 times) depending on company performance.

4. Special Dividend

A one-time bonus dividend paid during extraordinary profits (rare but high).

5. Bonus Shares

Instead of cash, the company gives additional shares free of cost. You can read more information about Bonus share in our detailed blog post: Bonus Issue in Stock Market: Meaning, Record Date, Eligibility, Ratio & FAQs

Example:
1:1 Bonus → For every 1 share, you receive 1 extra share.

Important Dividend Dates (Very Important for Beginners)

 

To receive a dividend, you must understand four key dates:

TermMeaning
Declaration DateCompany announces the dividend
Record DateYou must own shares by this date to be eligible
Ex-Dividend DateBuy before this date to receive dividend
Payment DateThe date the dividend is credited to your bank

Simple Rule:

Buy the stock at least 1 day before the Ex-Dividend Date to get the dividend.

Do Stock Prices Drop After Dividend?

 

Yes. On the ex-dividend date, the stock price usually drops by roughly the dividend amount.

Example:

  • Share price: ₹300

  • Dividend announced: ₹20

On ex-dividend, price may open around ₹280.

This is normal and part of market mechanics.

Do Dividends Help Grow Your Money?

 

Yes—especially through Dividend Reinvestment.

If you reinvest dividends by buying more shares, your wealth grows faster because of compounding.

Example for Beginners

 

You buy 100 shares of ITC at ₹450.
ITC announces ₹10 dividend.

Your dividend = 100 × 10 = ₹1,000

If you reinvest that ₹1,000 into more shares, your future dividends also increase.

This is how compounding works in the stock market.

Which Companies Pay Good Dividends?

 

Usually, these types of companies:

  • Large-cap companies

  • Stable profit-making firms

  • Utility companies

  • FMCG companies

  • PSU companies

TDS Deduction on Dividend Income

 

Many beginners get confused when they receive less dividend than what the company declared. This happens because companies must deduct TDS (Tax Deducted at Source) before crediting the dividend to your bank account.
The deducted amount is paid to the government as advance tax on your behalf.

How TDS Works on Dividend Income

 

Companies deduct tax from the dividend before crediting it to you.
The TDS rate depends on:

  • Whether you are a resident or NRI

  • Whether you have provided a valid PAN

  • The total dividend you receive during the financial year

TDS Rates for FY 2025–26

 

CategoryPrevious ThresholdNew Threshold (FY 25–26)TDS RateSpecial Conditions
Resident Individuals₹5,000₹10,00010%20% if PAN not provided
HUFs₹5,000Nil10%20% if PAN not provided
NRIsNilNil20%Plus surcharge + cess
Companies, LLPs, TrustsNilNil10%20% if PAN not provided

Examples:

 

Resident Individual WITH PAN – Dividend BELOW ₹10,000 threshold

  • Shares owned: 80

  • Dividend declared: ₹60 per share

  • Total dividend: 80 × 60 = ₹4,800

  • Since the amount is below ₹10,000, NO TDS is deducted

➡ Amount received: ₹4,800

Resident Individual WITH PAN – Dividend ABOVE ₹10,000 threshold

  • Shares owned: 400

  • Dividend declared: ₹40 per share

  • Total dividend: 400 × 40 = ₹16,000

  • TDS @ 10%: ₹1,600

➡ Amount received: ₹14,400

Resident WITHOUT PAN – Dividend ABOVE ₹10,000 threshold

  • Shares owned: 400

  • Dividend declared: ₹40 per share

  • Total dividend: ₹16,000

  • TDS @ 20% due to missing PAN: ₹3,200

➡ Amount received: ₹12,800

NRI Investor (Mandatory TDS)

  • Shares owned: 120

  • Dividend declared: ₹50 per share

  • Total dividend: 120 × 50 = ₹6,000

  • TDS @ 20% = ₹1,200
    (Plus surcharge + cess if applicable)

➡ Amount received: ₹4,800

Important Things to Know

 

1. TDS appears in Form 26AS

The TDS deducted on dividends shows up in your Form 26AS on the income tax portal.
You can claim this amount while filing your ITR.

2. Submit Form 15G / 15H to avoid TDS

If you are a senior citizen or your total income is below the taxable limit, you can submit Form 15G/15H to avoid TDS on dividends.

3. NRIs always face TDS

There is no minimum threshold for NRIs.
Even ₹1 dividend is taxed at 20% + surcharge + cess.

4. Non-individual resident shareholders

Corporates, LLPs, firms, funds, trusts → TDS applies on all dividends with no minimum exemption.

5. How many days it takes to credit the dividend amount?

Dividends are usually credited between 30 to 45 days after the ex-date/record date. Please note that the Dividends amount are credited directly to your primary bank account linked to your demat account as on record date.

6. What to do if dividend amount is not credited?

As we mentioned that the dividends amount are usually credited between 30 to 45 days after the ex-date/record date. If still its not credited after mentioned timeline, and you are eligible for dividend, you can directly reach respective company’s RTA(Registrar and transfer Agent).

Conclusion

 

Dividends are one of the safest and simplest ways to earn passive income from the stock market.
They give stability to your portfolio and help long-term wealth creation.

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