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Chapter II - Income-tax

Section 7

Section 7: income deemed to be received and dividend deemed to be income in a tax year

Section 7 deals with timing - it deems certain amounts to be "received" by a taxpayer in a particular tax year even though no cash may actually have changed hands that year, and it fixes exactly when a dividend is treated as income.

Official text
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.

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Statutory text

Bare law

(1) The following incomes shall be deemed to be received in the tax year:—

(a) the annual accretion in that year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in paragraph 6 of Part A of Schedule XI;

(b) the transferred balance in a recognised provident fund, to the extent provided in paragraph 11(4) and (5) of Part A of Schedule XI;

(c) the contribution made by the Central Government or any other employer in that year to the account of an employee under a pension scheme mentioned in section 124.

(2) For inclusion in the total income of an assessee,—

(a) any dividend declared by a company or distributed or paid by it within the meaning of section 2(40)(a) to (e) shall be deemed to be the income of the tax year in which it is so declared, distributed or paid, as the case may be;

(b) any interim dividend shall be deemed to be the income of the tax year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.

Introduction

Section 7 fixes the tax year in which certain provident-fund and other listed amounts are deemed received and when a dividend is deemed income. These timing rules can apply before cash reaches the taxpayer.

Key takeaways

1

Deemed receipts

Specified recognised-provident-fund accretions or transferred balances, and employer contributions to the notified pension scheme, are treated as received in the tax year under this section.

2

Dividend timing

A dividend is attributed to the tax year in which it is declared, distributed or paid under the linked definition; an interim dividend is attributed to the year it becomes unconditionally available.

Incomes deemed to be received (Section 7(1))

Three items are deemed to be received in the tax year:

  • The annual accretion in that year to the balance of an employee's recognised provident fund account, to the extent provided in Schedule XI, Part A, paragraph 6.
  • The transferred balance in a recognised provident fund, to the extent provided in Schedule XI, Part A, paragraphs 11(4) and 11(5).
  • The contribution made by the Central Government or any other employer in that year to an employee's account under the pension scheme referred to in section 124.

When a dividend is deemed to be income (Section 7(2))

A dividend declared, distributed or paid by a company (within the meaning of the sub-clauses of the "dividend" definition in section 2(40)) is deemed to be the income of the tax year in which it is declared, distributed or paid.

An interim dividend is deemed to be income of the tax year in which the amount of the dividend is unconditionally made available by the company to the member entitled to it.

Keep timing records

For a listed fund balance or dividend, determine the statutory event and tax year rather than relying only on a bank credit date. The related schedules set limits on fund amounts.

Step-by-step flow for timing under Section 7

  1. 1

    Is the amount a provident fund or pension item listed in Section 7(1)?

    Clause (a): annual accretion in a recognised provident fund (to the extent in paragraph 6 of Part A of Schedule XI); clause (b): transferred balance (to the extent in paragraph 11(4) and (5)); clause (c): Central Government or employer contribution in that year to a pension scheme under section 124.

    • Yes: Deemed received in that tax year, even though not actually received.
    • No: Go to the next step.
  2. 2

    Is it a dividend?

    • No: Section 7 does not apply; use the ordinary timing rules of the relevant head.
    • Yes: Go to the next step.
  3. 3

    Is it an interim dividend?

    • Yes: Income of the tax year in which the amount is unconditionally made available to the member (Section 7(2)(b)).
    • No: Go to the next step.
  4. 4

    Dividend within section 2(40)(a) to (e)

    Income of the tax year in which it is declared, distributed or paid, as the case may be (Section 7(2)(a)).

Practical checklist

Do

  • Keep provident-fund accretion and transfer statements and corporate dividend declaration records.
  • Match each item to subsection (1) or (2) and its specific deeming date.

Avoid

  • Do not treat all future fund balances as currently received without the referenced Schedule XI test.
  • Do not use actual dividend payment date where subsection (2) specifies a different timing event.

Illustrative example

Worked example: two dividends either side of 31 March

Hypothetical facts (illustration only, not a real taxpayer): Ms. Das holds shares in an Indian company. A final dividend of ₹20,000 is declared at the general meeting on 25 September 2026. The board declares an interim dividend on 20 March 2027 and makes ₹12,000 unconditionally available to her on 5 April 2027. Her employer also contributes to her account under the pension scheme referred to in section 124 during the tax year 2026-27.

  1. Final dividend

    Under Section 7(2)(a), the ₹20,000 is income of the tax year in which it was declared: tax year 2026-27 (1 April 2026 to 31 March 2027).

  2. Interim dividend

    Under Section 7(2)(b), the relevant date is when the amount is unconditionally made available, i.e. 5 April 2027. The ₹12,000 is income of tax year 2027-28, not 2026-27, even though it was declared in March 2027.

  3. Employer pension contribution

    Under Section 7(1)(c), the contribution is deemed received in tax year 2026-27, the year it was made, though she does not receive it in hand.

Outcome

  • Tax year 2026-27 includes the ₹20,000 final dividend and the employer pension contribution; tax year 2027-28 includes the ₹12,000 interim dividend.
  • Section 7 fixes timing; whether and how much is taxable depends on the charging and computation provisions.

Glossary

Deemed receipt
An amount treated by law as received in a tax year even if ordinary cash receipt differs.
Annual accretion
The increase in a recognised provident-fund balance in the tax year.

Frequently asked questions

Does Section 7 create new taxable income, or just fix timing?

It mainly fixes timing - it tells you in which tax year certain amounts (provident fund accretions/transfers, pension scheme contributions, and dividends) are treated as received or as income, so that the correct year's return includes them.

In which year is an interim dividend taxed?

In the tax year in which the amount is unconditionally made available by the company to the shareholder entitled to it.

Related sections

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Last updated 9 October 2026

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