Section 7 of the Income-tax Act, 2025 — Income Deemed to Be Received & Dividend Deemed to Be Income

In plain language

What Section 7 actually says

Section 7 of the Income-tax Act, 2025 creates a set of "legal fictions" — situations where the law treats money as received by you and taxable, even if you have not physically taken it in your hands during the year. It has two clear parts:

• Sub-section (1) — Income deemed to be received: certain provident fund accretions, transferred PF balances, and employer/Government contributions to a notified pension account.
• Sub-section (2) — Dividend deemed to be income: the year in which a dividend (including an interim dividend) is treated as your income.

This single section combines what were two separate provisions under the old law — Section 7 (deemed receipt) and Section 8 (dividend income) of the Income-tax Act, 1961.

Part 1 — Provident fund and pension amounts deemed received

Under Section 7(1), the following are deemed to be received in the tax year even though the employee cannot yet withdraw them:

• Annual accretion to a Recognised Provident Fund (RPF) — to the extent laid down in Paragraph 6, Part A of Schedule XI (the successor to the old Fourth Schedule). Two things get taxed: (a) the employer's contribution exceeding 12% of salary, and (b) interest credited above the rate notified by the Central Government.
• Transferred balance when an unrecognised PF becomes recognised — taxable to the extent given in Paragraph 11(4) and (5) of Part A, Schedule XI.
• Employer or Central Government contribution to a pension account under the scheme referred to in Section 124 (the National Pension System / Atal Pension type scheme — this is the successor to old Section 80CCD).

Who it applies to: salaried employees who are members of a recognised PF, and any employee for whom the employer or Government pays into a notified pension account. It does not apply to a Statutory PF or the Public Provident Fund (PPF), which follow their own rules.

Part 2 — When a dividend becomes your income

Section 7(2) fixes the timing of dividend taxation:

• A final dividend declared, distributed or paid by a company is deemed to be income of the tax year in which it is declared, distributed or paid.
• An interim dividend is income of the year in which the amount is unconditionally made available by the company to the shareholder entitled to it.

Since the abolition of Dividend Distribution Tax, dividend is fully taxable in the hands of the shareholder at their slab rate. The company deducts TDS at 10% under Section 194 once dividend paid to a resident crosses ₹10,000 in a financial year (threshold raised from ₹5,000 with effect from FY 2025-26); 20% applies if PAN is not furnished.

How it interacts with other sections

• Salary (Sections 15–19): excess employer PF contribution and excess interest deemed received under Section 7 are taxed as salary.
• Section 124: governs deduction for the pension contribution that Section 7 first brings to charge.
• Schedule XI: supplies the exact PF limits (12% and the notified interest rate) that Section 7 relies on.
• Section 194: the TDS mechanism that collects tax on the dividend Section 7 deems to be income.

Practical implications

• Check your PF passbook: if your employer puts in more than 12% of salary, the excess is taxable now, not at retirement.
• Interest earned on your own contribution above ₹2.5 lakh a year (₹5 lakh where the employer makes no contribution) is taxable — a rule carried forward from the 1961 framework.
• Dividend is never "tax-free" for the shareholder — always add it to your return and claim the TDS credit.
• Timing matters: an interim dividend is taxed only when it is actually made available to you, not when the board announces it.