Difference between Dividend Income and Capital Gains


They are two unique types of income that a financial backer procures over ventures and investments made on the land (capital gains) or stocks (dividends).

Capital gains are an ascent in the worth or value of the venture or land, which gives it a higher worth than the price tag. This gain isn’t realised until the resource is sold. The profit, then again, is a piece of the income or a proportion of a firm that is distributed to the investors as an award.

A dividend is a periodical premium payment that is made to a financial backer when the financial backer is holding stocks. A dividend is an award from the organisation to the financial backer, which is important for the income of an organisation. Dividends are chosen by the top management or board of directors of the organisation, and it is endorsed by voters. Whenever the financial backer sells the investment for more than its original price or sum and buys, the contrast or difference between the two is called capital gains. A capital gain can be long-term or short-term. Short term means term in one year or less, and long-term implies term over one year.

Meaning of Dividend Income:

Dividend income is paid with a payout rate, and the equivalent is paid to a financial backer according to plan or schedule recurrence, which could be yearly, quarterly, or month to month. The dividends are likewise paid to draw in financial backers, yet there is a restricted or limited period characterised by each organisation for which the financial backer needs to hold stocks. A dividend can be paid in the form of money, stocks, and these two different ways are generally utilised.

How about we take a model where a financial backer has put Rs. 1,000 in 2017 in the supply of XYZ Limited and got 100 stocks; the cost of one stock is Rs. 10. After one year, the organisation proclaimed a benefit or profit of Rs. 100 Million and chose to give a profit of Rs. 2 per share. In this way, the financial backer got Rs. 200 as a profit over his invested stock by the organisation.

The dividend affects share costs, too, as payment of profits prompts the progression of assets or flow of funds from the organisation’s book. Assume an organisation is exchanging at Rs. 50 on a specific day, the same day the organisation pronounces its profit or dividend as Rs. 5, as news in the market prompts an increment or diminishing exchanging cost. Here, likewise, after a declaration of information stock cost of the organisation will increment and may hit to Rs. 57; however, after payment of the sum, an organisation’s book declines with the aggregate sum of profit addressed to offer cost abatement or decrease and reach to Rs. 51.

A choice of payment of the profit or dividend could conceivably rely upon the presentation or performance of an organisation, assuming an organisation is going through monetary issue it might perhaps then it won’t give a profit to financial backers, and in the event that an organisation is performing great, additionally it might potentially then it won’t give a profit to the financial backer.

Meaning of Capital Gains:

A capital gain is a benefit or profit acquired from capital resources. An expansion in the worth of resources records to benefit or profit for its financial backer; however, until such time, said benefit or profit is hidden or unrealised as the resource is still with the financial backer and he hasn’t taken the advantage of ascending or rising price in cost at this point. When a financial backer sells his resources, the positive distinction of the cost will be capital addition, which is the benefit of the financial backer.

Capital additions are at risk or are liable for tax whenever resources are put into the present moment, while in the event that a speculation or an investment is in the long-term charge or tax obligation will be unique. This is dependent upon a kind of venture or investment.

We should see a guide to comprehend capital increase.

A financial backer has put Rs. 1,000 in 2017 in the supply of PQRS Limited and got 100 stocks; the cost of one stock is Rs. 10. Presently, following one year, he needed cash and needed to sell its stocks, around which time PQRS Limited was exchanging at RS. 20. He sells his 100 offers and acquires Rs. 2,000. As his price tag was Rs. 1000. Then, at that point, the benefit or profit will be:-

= Rs. 2000 – Rs. 1000

= Rs. 1000

In this way, the capital addition will be Rs. 1000 without taxes. The worth of capital addition increments with time, yet it is liable to economic situations.

Difference between Dividend Income and Capital Gains:




A dividend is the benefit rate given by an organisation to the financial backer.

Capital addition is a benefit made subsequent to the sale of a property.

Payment Mode

Dividend incomes are paid on a periodical premise relying upon organisational approaches and policies.

Acknowledged or realised liquidation.

Decision Made to Issue Profit is Declared by

Contingent upon the choice of senior administration.

Rely upon the market circumstance.

Tax Bracket

Lower taxes are charged.

The tax liability or the tax obligation is high; however, it relies upon investment terms which can be long-term or short-term.


Some portion of an organisation’s benefit or profit is appropriated to investors.

Expansion in the worth of long-term resources.

Cost of Investment

Generally, less investment is expected for buying stocks.

Huge investments are expected to get a higher capital increase.

The Cycle of Payment

The dividend income is appropriated on a periodical premise.

Capital gains happen once in a blue moon or once in a lifetime of a venture or investment.

Investors’ Control over the Investment

The financial backer can’t control profits or dividend incomes.

The capital gain can be constrained by a financial backer.


Dividend income versus capital gains is the way to create income for financial backers. The sum procured can be changed subject to change in the market circumstance and furthermore draws in taxes. In this way, while investing, these focuses need to be remembered. Dividend income versus capital gains helps to bring in cash in the long run and contrasts inside the monetary plan that will assist while using the cash proficiently over the long run.

The goal is to offer income to the financial backers on the chief or principal sum contributed by them. Since the sum acquired can be unstable, it will draw into consideration of the tax authorities, and in this manner, is expected to be dealt with mindfully and in accordance with the speculation destinations.

Both have a novel treatment in the country’s tax code, and information on incorporating these distinctions inside the monetary arrangement or the financial plan will assist while using the cash productively over the long run. They can likewise help in handling tax liabilities and lessening taxable income also.

Also, see:

Circular Flow of Income and Methods of Calculating National Income

What Are Equity Shares

Functions of Money

Types of Debentures

Sources of Business Finance

Issue of Shares

Writing Off Discount Loss on Issue of Debentures

Factor Cost Basic Prices and Market Prices

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