The Indian Income Tax Act recognizes that some income should not be subject to tax twice — once in the hands of the company & again in the hands of the shareholder. Section 10(33) was introduced to eliminate this double tax burden. It exempts dividends from specified sources, such as those received from domestic companies and mutual funds, that have already been taxed at the corporate level.
This section is part of a broader framework under Section 10 of the Income Tax Act, which lists incomes not included in total income. In other words, if a dividend falls under the definition of Section 10(33), you don’t need to add it to your taxable income while filing returns.
Historical Background and Amendments
When first introduced, Section 10(33) aimed to encourage investment in Indian companies by making dividend income more attractive to investors. Before the Finance Act of 2003, dividends were tax-free in the hands of the shareholder since companies paid a Dividend Distribution Tax (DDT).
However, the system has since evolved. In April 2020, the DDT was abolished, and dividends became taxable in the hands of the recipient under Section 115A and 115AC, depending on the nature of the investor. Still, the spirit of Section 10(33) remains important for specific exempt cases — particularly for dividends from specified mutual funds & income distributed by certain infrastructure funds.
Key Feature — “Dividends from Specified Sources”
The phrase “dividends from specified sources” is the heart of Section 10(33). It refers to dividends received from certain approved mutual funds & Unit Trust of India (UTI) schemes. These dividends remain exempt from tax because the fund itself has already paid tax on its profits before distribution.
For example, if you invest in a mutual fund whose income is already taxed under the Act, the dividends you receive from it are not included in your total income. This is why the section explicitly mentions “incomes not included in total income.”
Also Read: Penalty for Contravention of Section 269T
What Incomes Are Covered Under Section 10(33)?
Section 10(33) mainly covers the following income types:
- Dividends received from Unit Trust of India (UTI)
- Dividends from mutual funds specified under Section 10(23D)
- Dividends distributed before April 1, 2003, from domestic companies that paid DDT"
- Any other income distributed by specified funds approved by the Central Government
While this section has limited application today, it still applies to historical & specific exemption cases, especially for mutual fund dividends that fall within the defined period or structure.
Understanding “Incomes Not Included in Total Income”
Most income that is exempted from tax is listed under Section 10 of the Income Tax Act. This section acts as a comprehensive list of exemptions — ranging from agricultural income to educational scholarships, and from foreign diplomat salaries to dividends.
For taxpayers, it is essential to understand that “exempted” does not always mean “permanent.” For example, some dividends previously covered under Section 10(33) are now taxable after policy changes. Hence, you must verify each year whether a particular source of income continues to enjoy exemption status.
How Section 10(33) Interacts with Other Provisions
Although Section 10(33) is a stand-alone clause, it connects with several other provisions of the Income Tax Act. For instance:
- Section 115O (previously) imposed DDT on companies, ensuring dividends remained tax-free for investors.
- Section 10(34) and 10(35) later extended these exemptions to dividends and mutual fund income respectively.
- Section 10(46A) relates to exemptions for certain authorities & funds, similar in principle to the dividend exemption idea.
Together, these provisions form a network that defines what part of investment income remains outside the scope of taxation.
Why Dividend Exemption Was Crucial for Investors
Dividend exemptions encouraged investors to keep their money within the Indian equity & mutual fund ecosystem. It acted as a psychological incentive — tax-free returns appeared more lucrative, especially for retail investors seeking steady income.
This was also a policy tool for the government to attract capital toward regulated financial instruments rather than unrecorded or black-market investments. Even today, when dividends are taxed at the individual level, the foundation laid by Section 10(33) continues to guide policy thinking around equity and fund-based taxation.
Also Read: Section 10(46A): The New Tax Exemption Rule for Specified Authorities
Relevance in the Current Scenario
After the removal of DDT in FY 2020-21, dividend income is again taxed in the hands of shareholders. However, certain categories still retain exemption benefits through specific notifications & government approvals. Section 10(33) remains referenced in many judicial interpretations and legacy cases where dividend income was received before policy changes.
Therefore, for accurate reporting & compliance, taxpayers should check whether their dividend source qualifies as a “specified source.” If it does, it can still be treated as income not included in total income.
Illustration – How It Works in Practice
Let’s say Anita invested ₹5 lakh in a mutual fund registered under Section 10(23D). In FY 2002-03, the fund declared a dividend of ₹40,000. Since the dividend came from a specified source, it qualified for exemption under Section 10(33). Anita was not required to include it in her gross total income or pay any tax on it.
However, if the same dividend were declared today, it would likely fall under Section 115A & be taxed according to Anita’s income slab, unless specifically exempted.
Common Mistakes Taxpayers Make
- Assuming all dividends are tax-free — which they aren’t post-2020.
- Including exempt income in total income by mistake."
- Not reporting exempt dividends in Schedule EI of the ITR form.
- Confusing Section 10(33) with other similar sections like 10(34), 10(35), or 10(46A).
It’s crucial to cross-verify each income source & refer to the exact clause to avoid scrutiny or mismatch issues during income-tax processing.
Interlink with Other Sections and Tax Benefits
- Section 86 of the Income Tax Act deals with share of income from Association of Persons (AOPs), which also falls under the “not included in total income” concept.
- Sukanya Samriddhi Yojana Income Tax Section (Section 80C read with Section 10(11A)) also uses similar language for exemption of interest & maturity amounts.
- Section 15H relates to declaration for non-deduction of TDS on interest, echoing the theme of providing relief from unnecessary tax burden.
This interlink shows how Section 10(33) is a part of a larger ecosystem of tax incentives encouraging savings, investment, and financial discipline.
Also Read: Taxation on Share of Income from AOPs/BOIs
Lessons for Investors and Taxpayers
Even if Section 10(33) seems like a legacy clause, its principle — avoid double taxation on dividends from specified sources — remains relevant. Understanding which income is exempt and which is taxable can help you plan better and maximize returns.
Moreover, with the rise of dividend re-investment plans (DRIPs) & mutual fund schemes, tracking your dividend sources is vital. A little ignorance here could lead to wrong reporting & unwanted notices from the Income Tax Department.
Final Takeaway
Section 10(33) of the Income Tax Act remains a symbol of India’s early efforts to create an investor-friendly tax system. While tax laws evolve, the intent behind this section — that tax should not apply twice to the same income — still guides modern policy. For anyone earning dividends or holding mutual fund units, understanding this section ensures transparency and better tax planning.
If you receive dividends & aren’t sure how to report them — whether they qualify as incomes not included in total income or fall under dividends from specified sources — don’t worry. Our team at CallMyCA.com can help you file your ITR accurately, maximize deductions, and avoid any penalties. Book your consultation today and make tax filing stress-free.
