Quick Summary
The Finance Bill, 2026 has proposed a significant change in the taxation of dividend income and income from mutual fund units by disallowing interest expenditure as a deductible expense. The amendment impacts investors who fund their investments through borrowings and claim interest as a deduction u
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FAQ :
From 1st April 2026, interest expenditure incurred for earning dividend income or income from mutual fund units will no longer be allowed as a deductible expense under the Income-tax Act, 2025.
This amendment will take effect from 1st April 2026 and will apply to the tax year 2025-26 onwards.
Previously, taxpayers could deduct interest expenditure incurred for earning dividend or mutual fund income, up to a limit of 20% of the gross income.
Individuals, HUFs, and other investors who use borrowed funds to invest in dividend-paying stocks or mutual funds will be most affected, as their effective tax liability may increase.
The government aims to restrict deductions against passive income, simplify tax assessments by reducing disputes over expense claims, and align with the current dividend taxation framework.
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