If you have invested in shares or equity mutual funds and received dividend income or bonus shares in the financial year 2025-26, then filing Income Tax Return (ITR) for Assessment Year (AY) 2026-27 will involve reporting dividend payouts credited to your bank account and bonus shares allotted by companies, if any.
Taxpayers should be aware that income tax rules apply differently in both cases. While dividend incomes are taxable at the applicable tax rate of a taxpayer, bonus shares follow a different set of tax rules.
If you don’t know where to report dividend income, how to account for TDS deducted by companies, or where bonus shares need to be disclosed in your ITR, a small mistake could lead to mismatches with your Annual Information Statement (AIS) and potential scrutiny from the tax department.
Here’s how you can correctly report dividend income and bonus shares while filing your ITR for AY 2026-27.
How to report dividend income in ITR?
As per the Income Tax Department, dividends are taxed based on your applicable tax slab rates. If the dividend income received exceeds Rs 10,000, then the company will deduct TDS (tax deducted at source) at 10% under Section 194 of the Income Tax Act, 1961, if a PAN Card is submitted, while in the absence of a PAN Card, the TDS rate will go to 20% for the taxpayer.
You need to report dividend income in ITR-1 or ITR-2 under “Income from Other Sources” in Schedule OS of your ITR form, adding the gross amount before TDS.
To avoid Tax Deducted at Source (TDS) on your dividend income, Form 15G and 15H can be submitted only if your total taxable income is below the exemption limit. When you file your Income Tax Return (ITR), you can claim any TDS that was deducted as a tax credit. If your final tax liability is less than the amount withheld, you can be eligible for a refund of the TDS.
How to report bonus shares in ITR?
Bonus shares taxation rules vary depending on how long you hold the bonus shares. For example, if you hold the bonus shares for 12 months or more from the date of allotment, the profits are taxed at 12.5% under Long-Term Capital Gains (LTCG).
An annual exemption limit of Rs 1.25 lakh applies to total LTCG under Section 112A of the Income Tax Act.
And if you sell the shares within less than 12 months of their allotment, the profits are taxed at 20% as Short-Term Capital Gains (STCG).
Capital gains arising from the sale of bonus shares must be reported in Schedule CG of the ITR 2.
Where exactly should taxpayers report dividend income in ITR-1, ITR-2, ITR-3 and ITR-4?
Dividend income should generally be reported under Income from Other Sources in the relevant return form.
“In ITR-1, ITR-2, ITR-3 and ITR-4, taxpayers should disclose the gross dividend amount in the income schedule and then match any TDS, if deducted, with the tax credit schedule. If the dividend is chargeable at special rates under the provisions of the act, disclosure should be made in the appropriate field. For foreign dividend income, Schedule FSI requirements should be complied with as necessary,” said CA Chandni Anandan, Tax Expert at ClearTax.
The key point is that dividends are taxable in the hands of the investor and must be shown in the return, even if tax was already deducted at source.
Where should gains arising from the sale of bonus shares be disclosed in the ITR?
Gains from the sale of bonus shares should be reported under the Capital Gains schedule. Bonus shares are not taxed when received, but when they are sold, the sale proceeds become taxable as capital gains depending on the holding period and the nature of the shares.
In most cases, listed bonus shares are disclosed in ITR-2 or ITR-3 under the capital gains section, while the exact tax rate depends on whether the gain is short-term or long-term.
The cost of acquisition is generally taken as zero for post-31 January 2018 bonus shares, so the full sale value typically becomes taxable gain, subject to the applicable rules.
What supporting documents should taxpayers keep while reporting gains from bonus shares and dividends?
Taxpayers should keep the demat account statement, broker contract notes, annual tax statement, dividend statement, and AIS/Form 26AS extracts.
For bonus shares, it is also important to keep the corporate action statement or record-date note showing when the bonus was allotted.
For dividends, taxpayers should preserve broker statements showing the amount credited and any TDS deducted. These documents help establish the source of income and reduce the risk of a mismatch with reported figures.
How can investors avoid mismatches between broker-reported transactions and ITR disclosures?
The best way is to reconcile the figures in the broker statement, demat statement, AIS, and Form 26AS before filing the return.
“Investors should report the same transaction dates, quantities, sale value, and holding period that appear in their actual records, rather than relying only on a summary statement. If AIS shows an incorrect amount, they should not blindly copy it; instead, they should verify the broker statement and use the correct transaction data in the return,” commented CA Chandni Anandan.
Raising feedback in the AIS information is necessary in such situations. It also helps to check for corporate actions such as bonus issues, splits, and mergers, because these often cause reporting mismatches.
What red flags related to dividend income and capital gains could increase the chances of receiving a tax notice?
Some common red flags are unreported dividend income, dividend amounts that do not match AIS/Form 26AS, capital gains shown in the ITR that differ from broker data, and missing bonus-share transactions.
Another warning sign is when taxpayers report only net proceeds but not the correct gross dividend or full capital gains computation. Large stock-market transactions, repeated high-value gains, or foreign dividends not disclosed in the right schedule can also attract scrutiny.
The risk goes up when the return does not match third-party data that the department already has.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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