{"id":31519,"date":"2026-03-20T01:02:03","date_gmt":"2026-03-19T19:32:03","guid":{"rendered":"https:\/\/carajput.com\/blog\/?p=31519"},"modified":"2026-03-20T01:03:31","modified_gmt":"2026-03-19T19:33:31","slug":"no-interest-deduction-allowed-against-dividend-income","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/no-interest-deduction-allowed-against-dividend-income\/","title":{"rendered":"No Interest Deduction Allowed Against Dividend Income"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d8a42479670\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d8a42479670\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/no-interest-deduction-allowed-against-dividend-income\/#No_Interest_Deduction_Allowed_Against_Dividend_Income_Budget_2026_Update\" title=\"No Interest Deduction Allowed Against Dividend Income (Budget 2026 Update)\">No Interest Deduction Allowed Against Dividend Income (Budget 2026 Update)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/no-interest-deduction-allowed-against-dividend-income\/#Whats_changing_on_dividend_income\" title=\"What\u2019s changing on dividend income?\">What\u2019s changing on dividend income?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/no-interest-deduction-allowed-against-dividend-income\/#Impact_on_Investors_Takeaway\" title=\"Impact on Investors Takeaway :\">Impact on Investors Takeaway :<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/no-interest-deduction-allowed-against-dividend-income\/#Impact_on_Corporates_Holding_Structures\" title=\"Impact on Corporates &amp; Holding Structures\">Impact on Corporates &amp; Holding Structures<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-31520\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/03\/Divi.png\" alt=\"No Interest Deduction Allowed Against Dividend Income\" width=\"740\" height=\"652\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/03\/Divi.png 540w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/03\/Divi-300x264.png 300w\" sizes=\"(max-width: 740px) 100vw, 740px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"No_Interest_Deduction_Allowed_Against_Dividend_Income_Budget_2026_Update\"><\/span><span style=\"color: #000080;\"><strong>No Interest Deduction Allowed Against Dividend Income (Budget 2026 Update)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Investors in stocks and mutual funds, particularly those who use leveraged tactics like margin funding or overdrafts, will be significantly impacted by the Union Budget 2026. Although this modification makes reporting easier, it greatly raises the tax burden on leveraged assets. Before FY 2026\u20132027, investors and corporations using debt-funded equity solutions will need to review their models. Taxpayers could deduct interest up to 20% of dividend income under the previous law. This benefit will no longer be available starting in FY 2026\u20132027.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Whats_changing_on_dividend_income\"><\/span><span style=\"color: #000080;\"><strong>What\u2019s changing on dividend income?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"color: #000080;\"><strong>Key Highlights on No Interest Deduction Allowed Against Dividend Income<\/strong><\/span><\/p>\n<p>Until now, taxpayers could claim a deduction for interest paid on borrowed funds used to earn dividend income (capped at 20% of the dividend).<\/p>\n<ul>\n<li>No Interest Deduction and No Interest Offset:\u00a0 Interest paid on loans\/ODs used for buying shares, mutual funds, REITs\/InvITs will not be allowed as a deduction. Interest paid on loans or overdrafts used to acquire shares or mutual fund units can no longer reduce taxable dividend income.<\/li>\n<li>20% Deduction Withdrawn: Section 93(2) of the Income\u2011tax Act, 2025 is amended to remove the 20% cap deduction entirely.<\/li>\n<li>Full Taxation of Dividends: Dividend and mutual fund income will now be taxed entirely at slab rates \u2014 irrespective of interest costs.<\/li>\n<li>Higher Tax Outgo for Leveraged: Investors Earlier, interest costs partially offset tax liability. Now, taxation is on gross dividend.<\/li>\n<li>Effective 1 April 2026: Applicable for tax year 2026\u201327 and onward. A corresponding amendment has been proposed in Section 93(2) of the Income Tax Act, 2025.<\/li>\n<\/ul>\n<p>Impact Example : If you earn INR 50 lakh in dividends but pay INR 40 lakh interest on borrowed funds \u00a0Taxable Income = INR 50 lakh (not INR 10 lakh) and Entire dividend taxed as per slab. This significantly affects strategies involving high-yield PSUs, REITs\/InvITs, and leveraged dividend investing models.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Impact_on_Investors_Takeaway\"><\/span><span style=\"color: #000080;\"><strong>Impact on Investors Takeaway :<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>This amendment shifts dividend investing firmly toward non-leveraged structures. Investors relying on interest\u2011based arbitrage or yield\u2011borrowing strategies need to reassess portfolio economics post\u2011FY 2026\u201327.<\/p>\n<ul>\n<li>Higher tax outflow for individuals and HNIs using margin funding, OD limits, or leveraged yield strategies.<\/li>\n<li>Dividends will now be taxed on the gross amount, irrespective of interest outgo.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Impact_on_Corporates_Holding_Structures\"><\/span><span style=\"color: #000080;\"><strong>Impact on Corporates &amp; Holding Structures<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Investment holding companies with borrowings for acquiring subsidiaries may face higher taxable income.<\/li>\n<li>Leveraged M&amp;A structures may require re\u2011evaluation due to the loss of interest deductibility.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>No Interest Deduction Allowed Against Dividend Income (Budget 2026 Update) Investors in stocks and mutual funds, particularly those who use leveraged tactics like margin funding or overdrafts, will be significantly impacted by the Union Budget 2026. Although this modification makes reporting easier, it greatly raises the tax burden on leveraged assets. Before FY 2026\u20132027, investors &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/31519"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=31519"}],"version-history":[{"count":2,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/31519\/revisions"}],"predecessor-version":[{"id":31522,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/31519\/revisions\/31522"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=31519"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=31519"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=31519"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}