Non-Allowability of Interest Deduction Against Dividend Income

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 Non-Allowability of Interest Deduction Against Dividend Income



Dividend income and income from units of mutual funds, categorized as passive investment receipts, are taxable under the head “Income from Other Sources” as per the Income-tax Act, 2025.

Currently, Section 93 allows taxpayers to claim interest expenditure incurred to earn such income, subject to a ceiling of 20% of the gross dividend or mutual fund income. However, the government has proposed an amendment to Section 93(2) to disallow any deduction of interest expenditure against dividend income or mutual fund income.

The amendment is set to take effect from 1st April 2026 and will apply for the tax year 2025-26 onwards. Taxpayers and investors are advised to take note of this change while planning their investment and tax strategies.




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