TDS on DIvidend on Section 194

TDS On Dividend Section 194 | Exemption Limit, TDS Rate

TDS on Dividend Section 194: Deducting tax at source is required of the principal officer of an Indian company or a corporation that has made the requisite arrangements for the declaration and payment of any dividend (including dividends on preference shares) to a shareholder who is a resident of India. On this page, let’s learn everything about TDS on Dividend Section 194k in detail.

TDS On Dividend Threshold Limit

If the dividend is paid by any method other than cash, there is no deduction up to Rs. 5000. So the dividend threshold limit on TDS is Rs. 5000/-

When TDS Under Section 194 Is Deducted?

Tax is deducted at the time of crediting the money to the payee’s account or at the time of payment, whichever comes first. This means before making a dividend payment, any TDS applicable must be deducted.

When TDS on Dividend Is Not Applicable?

TDS is not required to be deducted if the following conditions are met:

  • Form 15G or 15H is used to declare dividends covered by section 115-O.
  • The amount of dividend paid or projected to be paid to a shareholder in a financial year does not exceed Rs. 2,500, and it is paid by account payee cheque.
  • Any dividend due to LIC, GIC, or any of their subsidiaries or any other insurer in respect of shares in which they possess or have a full beneficial stake.

TDS Rate on Dividend Section 194

The tax will be deducted at a rate of 10%. (7.5 percent w.e.f. 14.05.2020 to 31.03.2021). TDS will be deducted at a rate of 20% if the income recipient does not provide his PAN to the deductor.

Details TDS Rate
PAN Card Provided 10%
No PAN Card Provided 20%

Also, under Section 197, an assessee might request no TDS or a lower rate of TDS from the assessing officer.

TDS on Dividend for Resident Shareholders

  • If the dividend amount exceeds INR 5,000, the tax rate is 10% (now decreased to 7.5%)
  • In the absence of a PAN, the tax rate is 20%.
  • If Form 15G/15H is submitted, there is no TDS.
  • TDS is not required for certain insurance companies/mutual funds and AIFs.

TDS on Dividend for Non-Resident Shareholders

  • TDS Rate: 20% plus applicable surcharges and cess, or DTAA rates, whichever is more beneficial.
  • Surcharges are limited to a maximum of 15%.
  • TRC must be secured with a statement of PPT, beneficial ownership, and the absence of PE/POEM in India.

Note: The above pointers are applicable only for non-resident shareholders other than FPI.

TDS on Dividend for FPI

The TDS rate for FPI’s is 20% along with applicable surcharges and cess.

Compliance Requirements Under TDS Dividends

  • In the event of any payments to non-residents, filing TDS returns and issuing TDS certificates (Form 15CA) is required.
  • If a payment to a non-resident exceeds INR 5 lakhs, a CA certificate on Form 15CB is required.

FAQ’s on TDS on Dividend Section 194

Question 1.
Is TDS is applicable to dividends?

Answer:
Yes, due to the elimination of the Dividend Distribution Tax (DDT), dividend income becomes taxable in the hands of investors, and tax deduction at source (TDS) becomes applicable on dividend payout under Section 194 of the Income Tax Act.

Question 2.
How can I claim TDS on dividends?

Answer:
Yes, the deductee can claim credit for the tax deducted on Form 16A when submitting an income tax return.

Question 3.
How can I claim TDS exemption in dividends every financial year?

Answer:
Form 15G can be submitted to the corporation or mutual fund paying the dividend by a domestic individual whose projected annual income is below the exemption limit to claim the TDS.

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