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:
| Term | Meaning |
|---|---|
| Declaration Date | Company announces the dividend |
| Record Date | You must own shares by this date to be eligible |
| Ex-Dividend Date | Buy before this date to receive dividend |
| Payment Date | The 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
| Category | Previous Threshold | New Threshold (FY 25–26) | TDS Rate | Special Conditions |
|---|---|---|---|---|
| Resident Individuals | ₹5,000 | ₹10,000 | 10% | 20% if PAN not provided |
| HUFs | ₹5,000 | Nil | 10% | 20% if PAN not provided |
| NRIs | Nil | Nil | 20% | Plus surcharge + cess |
| Companies, LLPs, Trusts | Nil | Nil | 10% | 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.
