Do you invest in stocks or mutual funds? If yes, then you should know the taxation rules on dividend income. It may be noted that taxation rules are different on dividend income from companies listed in India and abroad. Similarly, dividends received from mutual fund and equities are treated differently in India. Within mutual funds, dividend income from a debt scheme are taxed differently as compared to dividend income from equity mutual funds.

Investors must have a clear idea of how dividend incomes are taxed in India so that they can plan their tax in advance. Here is all you need to know about taxation of dividend income in India.

Dividend from stocks

According to income tax rules, dividends up to Rs 10 lakh received from domestic companies (listed in India) are exempt from tax for investors. However, dividend received from a foreign-listed company is taxable in the hands of investors under the head "income from other sources". In this case, the tax rate will be as per the prevailing income tax slab of the investor.

Worth mentioning here that a domestic company has to pay dividend distribution tax of 15 per cent before crediting dividends to its shareholders But a foreign company is exempted from paying dividend distribution tax on dividends paid to its shareholders.

Dividend from mutual funds

Dividends received from mutual funds (debt and equity both) are tax-free in the hands of investors. Buy mutual funds are required to pay dividend distribution tax. For equity mutual funds, the dividend distribution tax is 25 per cent and including surcharge and cess it becomes 29.12 per cent.

Similarly, for debt funds, dividend distribution tax is 10 per cent and including surcharge and cess it becomes 11.64 per cent.