Dividend, bonus, buyback tax explained: How stock market income is taxed in India

Companies frequently distribute money to shareholders through dividends, bonus shares, and buybacks, but their tax treatment in India differs significantly.

Recent corporate actions in the Q4 FY26 earnings cycle, such as HDFC Bank’s ₹13 dividend, Wipro’s buyback proposal, Aurobindo Pharma and Cyient buybacks, and Trent’s bonus issue, have brought these rules back into focus.

With multiple companies announcing corporate actions in a short span, understanding the tax impact of each has become important for equity investors.

How dividends, bonus shares, and buybacks are taxed in India

Dividends are taxed in the hands of investors as per income tax slab rates.

"When you receive dividends from a company, you must add them to your total income under Income from Other Sources. The government taxes this income according to your income tax slab (for example, 5%, 10%, 15%, 20%,25% or 30%). If your dividend income exceeds ₹5,000 in a year, the company may deduct TDS at 10%, but your final tax depends on your slab. So, higher-income taxpayers usually pay more tax on dividends," explained CA Abhishek Soni, CEO & Co-founder, Tax2win.

Bonus shares are issued free of cost to existing shareholders and are not taxed at the time of allotment. However, when these shares are sold, capital gains tax applies based on the holding period.

If you sell within 1 year, Short-Term Capital Gains (STCG) are taxed at 20%. If you hold for more than 1 year, Long-Term Capital Gains (LTCG) taxed at 12.5% (above ₹1.25 lakh)

With many companies announcing dividends, bonus shares, and buybacks in a short period, investors need to understand how these are taxed.