🎯 In 30 seconds: Companies hand value back to shareholders in two ways: dividends (cash per share) and buybacks (the company buys its own shares back). They also reshape their share count with bonus issues and splits, which change the number of shares you hold but not the value of your holding, and raise money from existing holders through rights issues. In India, with T+1 settlement, the ex-date is normally the same day as the record date, so you must buy at least one trading day before the record date to get a dividend. Dividends are taxable in your hands, and the company deducts 10% TDS once your dividends from it cross ₹10,000 in a year. From 1 April 2026, buyback money is taxed as a capital gain again rather than as a dividend, with extra tax for promoters.
What a dividend is
Think of a family-run sweet shop owned by five cousins. At the end of a good Diwali season, after paying staff, suppliers and rent, there is ₹5 lakh left over. The cousins can keep it in the business to open a second shop, or share it out: ₹1 lakh each. A company faces the same choice every year. When it shares profits out as cash, that is a dividend.
Indian companies announce dividends per share, for example "₹6 per share". You will also see it stated as a percentage of face value, which confuses beginners: "a 60% dividend" on a share with ₹10 face value is ₹6 a share, whatever the market price. See Reading a stock quote for face value.
- Interim dividend: declared by the board during the financial year, often alongside quarterly results.
- Final dividend: recommended by the board after the year ends and paid only if shareholders approve it at the annual general meeting (AGM).
- Special dividend: a one-off payment, often after an unusually good year or the sale of a business. Do not expect it to repeat.
Dividends are not guaranteed. A company can cut or skip them, and many young, fast-growing companies pay none because they reinvest everything.
The dates that decide who gets paid
Every dividend comes with dates, announced to the exchanges and shown on the NSE and BSE corporate actions pages.
- Announcement date: when the board declares or recommends the dividend and fixes a record date.
- Record date: the company pays everyone who is on its register of shareholders, through the depositories, at the end of this day.
- Ex-date: the first trading day on which a buyer does not get the dividend. The share is said to trade "ex-dividend".
- Payment date: when the money reaches your bank account linked to your demat.
India settles share trades on T+1: shares you buy reach your demat account one trading day after the trade. If you buy on the record date itself, your shares arrive the next day, too late to be on the register. So the exchange sets the ex-date on the record date. In NSE's corporate actions list for 1 to 15 September 2026, 197 of 232 entries had the ex-date and record date on the same day. Every one of the other 35 had a record date on a weekend or an exchange holiday, and the ex-date was the last trading day before it.
Why the price drops on the ex-date
On the day before the ex-date, a buyer gets the share and the coming ₹6. On the ex-date, a buyer gets only the share. All else equal, the share should be worth about ₹6 less, and it tends to open lower by roughly that amount. In practice the drop is mixed up with everything else moving the market that morning.
| Close before ex-date | ₹486.00 |
| Dividend | ₹6.00 |
| Expected price on ex-date, other things equal | about ₹480.00 |
That is why "buy just before the ex-date and collect the dividend" does not work as free money. You get ₹6 in cash, your shares are worth about ₹6 less, and you may owe tax on the dividend. Charts that adjust for dividends smooth this drop out; see Chart basics.
How dividends are taxed, and TDS
Dividends from Indian companies are taxable in the hands of the shareholder. They are added to your income for the year and taxed at the rate that applies to you. The company also deducts tax at source (TDS) before paying you, under section 393(1) of the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026. As of October 2026:
- TDS is 10% for resident shareholders with a valid PAN, and 20% if PAN is missing or invalid (for example, not linked with Aadhaar).
- No TDS is deducted for a resident individual whose total dividend from that company in the financial year does not exceed ₹10,000. The limit was raised from ₹5,000 from 1 April 2025.
- Eligible individuals can submit Form 121 to the company's registrar to ask for no TDS. Under the new Act it is used by all eligible individuals, including those above 60, in place of the older forms.
| You hold 2,000 Sharma Foods shares; dividend ₹6 a share | ₹12,000 |
| Above ₹10,000, so TDS at 10% | minus ₹1,200 |
| Credited to your bank | ₹10,800 |
| The ₹1,200 appears in your tax statement and counts against your final tax |
TDS is not the final tax. If your slab rate is higher than 10%, you pay the difference when you file. If it is lower, you can claim a refund. Non-residents face different rates. Taxes for traders and investors covers the rest, and for anything beyond the basics, check with a chartered accountant.
Dividend yield, payout ratio and traps
Dividend yield is the yearly dividend divided by the share price. Payout ratio is the dividend divided by earnings per share: how much of the profit is being paid out.
| Dividend per share, last 12 months | ₹6.00 |
| Price | ₹486.40 |
| Yield: 6 / 486.40 | 1.23% |
| EPS | ₹24.32 |
| Payout ratio: 6 / 24.32 | 25% |
A low payout leaves room for the dividend to grow or survive a bad year. A payout above 100% means the company is paying more than it earned, from reserves or borrowing, which cannot last.
A yield trap is a share whose yield looks high because its price has collapsed, often because the market expects the dividend to be cut. A share that paid ₹20 last year and has fallen from ₹400 to ₹200 shows a 10% yield. If profits have halved, next year's dividend may be ₹8 and the real yield 4%. Always look at the profit behind the dividend, and at whether last year's payment included a one-off special dividend. Dividend investing goes deeper.
Bonus issues
A bonus issue gives existing shareholders extra shares for free, paid for by moving money from the company's reserves into share capital. A "1:1 bonus" means one new share for every share you hold; "1:2" means one new share for every two.
| Before a 1:1 bonus | 100 shares x ₹1,080 = ₹1,08,000 |
| After | 200 shares x about ₹540 = about ₹1,08,000 |
Nothing about the business changed, and neither did your share of it. You own the same slice cut into more pieces. Companies give bonuses to make shares look more affordable and to signal confidence, but a bonus is not extra value.
Timing: for bonus issues announced on or after 1 October 2024, SEBI requires the new shares to be credited and available for trading on the second working day after the record date (T+2, with T the record date). As with dividends, you need to hold the shares at the end of the record date, which under T+1 means buying before the ex-date.
Stock splits
A split (sub-division) divides each share into smaller ones by reducing its face value. A split from ₹10 face value to ₹2 turns each share into five.
| Before: face value ₹10 | 100 shares x ₹2,500 = ₹2,50,000 |
| After: face value ₹2 | 500 shares x about ₹500 = about ₹2,50,000 |
| Bonus issue | Split | |
|---|---|---|
| Number of shares | Goes up | Goes up |
| Price per share | Falls in proportion | Falls in proportion |
| Face value | Unchanged | Reduced |
| Company's reserves | Part moved into share capital | Unchanged |
| Value of your holding | Unchanged | Unchanged |
The opposite, a consolidation (reverse split), combines shares into fewer, larger ones. Charts and 52-week ranges adjust earlier prices for all of these; see the adjustment factors in Chart basics.
Rights issues
A rights issue is the company raising money by offering new shares to existing shareholders first, in proportion to what they hold, usually at a discount to the market price. "1 for 5 at ₹400" means you may buy one new share for every five you own, at ₹400 each.
- Your right to subscribe arrives in your demat account as a rights entitlement (RE), a separate security.
- You can apply for the new shares, let the entitlement lapse, or sell it on the exchange during the RE trading window, which closes a few days before the issue closes.
- Under SEBI's March 2025 circular, rights issues must be completed within 23 working days of board approval (effective April 2025).
If you do nothing, your entitlement lapses and your share of the company shrinks, because others are buying new shares and you are not. The discount makes the issue look attractive, but the new shares dilute everyone; the share price usually adjusts down for that. Decide each time whether to subscribe, sell the RE, or let it go, and do not ignore the notice. Mergers, open offers, demergers and delistings covers other corporate actions.
Buybacks
In a buyback, the company uses its cash to buy its own shares and cancel them. Fewer shares remain, so each one represents a bigger slice of the business.
| Before: profit ₹500 crore, 10 crore shares | EPS ₹50.00 |
| Buys back 50 lakh shares (5%) with ₹500 crore of cash | |
| Profit falls to ₹480 crore (lost interest on the cash) | |
| After: ₹480 crore / 9.5 crore shares | EPS ₹50.53 |
EPS rises a little even though profit fell. A buyback adds value for remaining holders only if the price paid is below what the shares are really worth. A company buying back at an inflated price is destroying value, however good the EPS figure looks.
Indian companies buy back in two main ways.
| Tender offer | Open market through the exchange | |
|---|---|---|
| How it works | Company offers a fixed price, often above market, to all holders on a record date. You "tender" shares through your broker. | Company buys shares on NSE and BSE over a period, at market prices, through normal order matching |
| Small shareholders | 15% of the buyback (or more, depending on holdings) is reserved for small shareholders, those holding shares worth up to ₹2 lakh on the record date | No reservation; you just sell on the market if you wish |
| Promoters | Participation governed by SEBI's Buy-back Regulations and the offer document | Barred from selling into it; their shares are frozen during the buyback |
| Status | Available | Discontinued from 1 April 2025, reintroduced from 1 August 2026, to be completed within 66 working days with at least 40% of the funds used in the first half |
In a tender offer, more shares are usually tendered than the company will buy, so only part of what you offer is accepted. The acceptance ratio is the share of tendered shares accepted. If you tender 300 shares and the small-shareholder acceptance ratio is 25%, the company buys 75 and returns 225 to your demat account. Those 225 go back to trading at the market price, which can fall once the offer closes.
| Tender price | ₹600 |
| Your cost per share | ₹420 |
| Shares accepted | 75 |
| Capital gain: (₹600 minus ₹420) x 75 | ₹13,500 |
Whether that gain is short-term or long-term depends on how long you held the shares, and the rates are in Taxes for traders and investors.
Try it
Open the corporate actions page on the NSE website and filter for the coming month. Pick three entries: one dividend, one bonus or split, and one other action if you can find it (a rights issue or buyback). For each, note the ex-date, record date and purpose. Work out the last day you would have to buy to qualify, allowing for weekends and holidays. For the dividend, calculate the yield at today's price and the payout ratio from the company's latest annual EPS. For the bonus or split, work out how many shares 100 shares would become and the expected price after the ex-date, then check the actual price on that day.
- The record date for a dividend is Wednesday, a normal trading day. What is the last day you can buy and still get the dividend? Answer: Tuesday. Under T+1 the ex-date is Wednesday, the same as the record date, so a Wednesday purchase settles too late.
- You hold 1,500 shares and the dividend is ₹6 a share. Will TDS be deducted, and how much reaches your bank? Answer: ₹9,000 total, which is not above ₹10,000, so no TDS for a resident individual; ₹9,000 is credited. It is still taxable income.
- You hold 60 shares at ₹900 and the company does a 1:2 bonus. What do you hold after? Answer: 90 shares (one new for every two), at about ₹600 each. About ₹54,000 either way.
- What is the difference between a bonus issue and a split? Answer: Both raise the share count and cut the price in proportion. A bonus capitalises reserves and keeps face value; a split reduces face value and leaves reserves alone.
- From 1 April 2026, how is a small investor's buyback money taxed? Answer: As capital gains on the price received minus the cost of the shares, not as a dividend.
Sources
- NSE: Corporate actions (ex-dates and record dates)
- NSE filing (July 2026): a listed company's shareholder communication on TDS on dividend under section 393 of the Income-tax Act, 2025 (10%, ₹10,000, Form 121)
- Gazette of India: The Finance Act, 2026 (No. 4 of 2026), including the amendment to section 69 on buybacks
- Income Tax Department: Income-tax Act, 2025 as amended by Finance Act, 2026
- PIB: The Income Tax Act, 2025 to come into effect from 1 April 2026
- SEBI circular (16 September 2024): Ease of doing business, trading of bonus shares on T+2
- SEBI circular (11 March 2025): Faster rights issue (copy hosted by NSDL)
- SEBI PR No. 33/2026: Key decisions of the SEBI Board (re-introduction of open market buy-back through stock exchanges)
- SEBI: Re-introduction of open market buy-back through stock exchanges (conditions)
- NSE filing (May 2026): a buyback board resolution showing the 15% small-shareholder reservation