Many investors receive benefits from their stock holdings in the form of dividend income or bonus shares. While these may seem like attractive rewards, they come with certain tax implications that need to be considered while filing income tax returns. If you received any of these rewards in financial year 2025-26, then you must pay close attention to these details while filing ITR this year (AY 2026-27).
However, these benefits are not taxed in the same way. is treated differently from bonus shares, even though both appear to be something that the company has given shareholders at no extra cost. Hence, you must understand how each is taxed and where it should be reported in your ITR to avoid errors and ensure tax compliance.
How is dividend income taxed and reported in ITR?
If you invest in equity shares, one way of earning income apart from capital gains is through the dividend that the company pays, which is taxed in the hands of the investor and not the company.
Earlier investors or shareholders did not have to pay tax on it because the company declaring such a dividend had already paid dividend distribution tax (DDT) before making the payment. However, this system was abolished under the Finance Act. 2020. Henceforth, all dividends received on or after 1 April 2020 are taxable in the hands of the investor.
As per the latest income tax rules, such dividends are taxed at the slab rates that are applicable to you. They must also be disclosed under income from other sources while filing a tax return. Additionally, if the dividend received from a company exceeds ₹10,000, then the company will deduct TDS (tax deducted at source) at 10% under Section 194 of the Income Tax Act.
How are bonus shares taxed and reported in ITR?
Bonus shares are not taxed when you receive them because you do not receive any cash in your account. The Income Tax Act considers the acquisition cost of bonus shares to be zero.
In this case, since only shares were added to your , their taxability does not arise just yet. However, when you sell them, the entire sale price is treated as a taxable capital gain, classified by how long you held the shares from the allotment date. Here’s how capital gains from selling bonus shares are taxed and reported in ITR:
- Short-term capital gains: They are taxed at a flat rate of 20% (for listed equity shares and equity mutual funds).
- Long-term capital gains: They are taxed at 12.5% (for listed equity shares and equity mutual funds). However, you are granted a tax exemption on the first ₹1.25 lakh of gains per financial year. Taxes only apply to the portion of your long-term profits exceeding this limit.
- How to report in ITR: Investors must generally report short-term or long-term capital gains under ‘Schedule CG’ in. However, resident individuals can use ITR-1 if their capital gains are LTCG of up to ₹1.25 lakh during the financial year, provided they satisfy all other eligibility conditions and do not have capital losses to carry forward.