As per Finance Act, 2003 from the Assessment Year 2004-05, the dividend income from shares and income from units of Mutual Funds covered U/s 10(23D) would be completely exempt from income tax. The relevant sections areas follows
1.For dividend income from Indian company : Fully exempt from payment of income tax by the receiver as per section 10(34) as the company already paid the tax on its distributable profits.This exemption is allowed inorder to avoid double taxation. (but if the dividend is received from a foreign company the receiver is liable to pay tax.
Income from Mutual funds are exempt from Tax u/s 10(35)