Borrowing to Invest? No more interest expenditure against dividend income in Budget 2026

If you use leverage to boost your equity portfolio, your net returns just took a hit. Budget 2026 has quietly removed a key deduction that helped offset your borrowing costs.

What changed in this Budget:

Investors have been using Section 57 under Income Tax Act,1961to reduce the tax on their dividend income.

• Before: You could deduct interest expenses (up to 20% of dividend income) incurred to earn that dividend. If you borrowed money to buy shares, the interest paid lowered your taxable dividend income.
• After: Section 93 (corresponding to Section 57 of the Income Tax Act, 1961) has been amended. Interest deductions against dividend income are now removed. You pay tax on the full dividend amount received, regardless of your borrowing costs.

Strategic Impact: Since dividends are taxed at your slab rate (which can be as high as 35.88% including surcharge and cess), and you can no longer deduct the interest, your post-tax yield will reduce.