Union Budget 2026-27 - Finance Bill, 2026

Dividend income and income from units of mutual funds constitute passive investment receipts taxable under the head “Income from other sources” under the Income- tax Act, 2025. Section 93 of the Act provides for allowing certain deductions against such income, i.e interest expenditure incurred for earning such income, subject to a ceiling of twenty per cent of the gross dividend or income from units of mutual funds.

It is proposed to amend section 93(2) to provide that no deduction shall be allowed in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds.

The amendment will take effect from the 1st day of April, 2026 and shall accordingly apply for tax year 2025-26 onwards.

[Clause 36]

 

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Full Text:

Union Budget 2026-27 - Finance Bill, 2026

Dividend income: interest deductions disallowed for earning dividend or mutual fund unit income from April 1, 2026. The Finance Bill amends the law to disallow any deduction for interest expenditure incurred in earning dividend income or income from units of mutual funds, removing the earlier deduction that had been permitted up to a twenty per cent ceiling of gross dividend or mutual fund income; the change applies prospectively from the Bill's implementation date and affects income taxed under Income from other sources.