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As the ITR filing season for AY 2026-27 begins, investors must accurately report dividend income and bonus share transactions. Failing to align your return with the Annual Information Statement (AIS) can lead to tax notices. This guide explains how to report these items correctly, understand the tax on bonus shares, and avoid common errors that attract scrutiny from the tax department.
What Happened
With the deadline for filing Income Tax Returns (ITR) for Assessment Year (AY) 2026-27 approaching, investors need to be precise when reporting income from equity investments. The Income Tax Department relies heavily on digital tracking, making it necessary for taxpayers to ensure that their reported income matches the data reflected in the Annual Information Statement (AIS) and Form 26AS. Errors in reporting dividends or capital gains from bonus shares are common triggers for tax scrutiny or notice from the authorities.
How to Report Dividend Income
Dividends received by shareholders are treated as 'Income from Other Sources.' This means they are added to your total income and taxed according to your specific tax slab. Many investors mistakenly report only the amount they received in their bank account. However, you must report the gross dividend amount—the total declared amount before any tax was cut.
If your total dividend income from a company exceeds Rs 10,000 in a financial year, the company deducts Tax Deducted at Source (TDS) at 10% under Section 194 of the Income Tax Act. You must report this gross figure in Schedule OS of your ITR. You can claim the TDS already paid as a credit against your final tax liability, which may result in a refund if your total tax is lower than the amount already deducted. If you did not provide your PAN to the company, the tax deduction rate is higher, at 20%.
The Bonus Share Rule
Bonus shares are often misunderstood by taxpayers. You are not taxed when you receive these shares. Taxation only occurs when you eventually sell them. Because you did not pay to acquire these shares, the cost of acquisition for tax purposes is considered zero. This means that when you calculate your profit for tax filing, the entire sale price is treated as your capital gain.
The tax rate depends on how long you held the shares. If you hold bonus shares for 12 months or more from the date they were allotted to you, the profit is treated as Long-Term Capital Gains (LTCG). This is taxed at 12.5%, provided your total long-term gains exceed the annual exemption limit of Rs 1.25 lakh. If you sell the shares before 12 months, the profit is treated as Short-Term Capital Gains (STCG) and is taxed at 20%.
Why Mismatches Happen
The tax department uses the Annual Information Statement (AIS) to track your transactions. If your ITR figures differ from the AIS or broker statements, it is a red flag. Common mistakes include ignoring small dividend payouts, forgetting to report the sale of bonus shares, or miscalculating the holding period. Taxpayers should cross-verify their broker contract notes and demat statements with the AIS before finalizing the filing. If you find incorrect information in the AIS, such as a transaction that never occurred or an incorrect amount, you can provide feedback on the portal to correct it before filing your return.
What Investors Should Track
When preparing your documents, ensure you have your demat account statements, annual tax summaries provided by your broker, and dividend statements. For bonus shares, keep a record of the original allotment dates to correctly determine if your sale qualifies as long-term or short-term. The key monitorable for any investor is the reconciliation process—matching your internal records with the official AIS and Form 26AS data. Accurate reporting is the best way to ensure a smooth filing process and avoid unnecessary follow-up from the tax authorities.