The provisions relating to TDS on dividend is covered under Section 194 of the Income Tax Act, and the same has been explained briefly in the current article.

Going through the basic provisions of section 194 of the Income Tax Act –

As per the provisions of section 194 of the Income Tax Act, the Principal officer of an Indian Company or a Company making prescribed arrangements for declaration and payment of the dividend within India is required to deduct TDS on dividend, if the following conditions are satisfied –

1. The dividend is paid to the shareholder who is resident in India; and

2. The dividend covered within the meaning of Clause (a) to (e) section 2(22).

It is important to note that the dividend referred above covers the dividends on preference shares also i.e., TDS is to be deducted on dividends on preference shares if provisions of section 194 gets attracted. Further, payment of TDS on dividend to non-resident is not covered within the provisions of section 194.

Time of deduction of TDS on dividend –

As per provisions of section 194 of the Income Tax Act, the Deductor is required to deduct the TDS earlier of the following dates –

  • Before making payment in cash; or
  • Before issuing any cheque or warrant; or
  • Before making any distribution or payment.

Rate of TDS on dividend –

The Company liable to deduct TDS as per provisions of section 194 is required to deduct TDS @10%. However, in case the shareholder fails to furnish the Permanent Account Number (PAN), then, the Company would be liable to deduct TDS at the maximum marginal rate.

Exemption from deduction of TDS on dividends

Following is a list of dividends on which TDS is not required to be deducted as per section 194 –

1. Dividend paid to an individual where the aggregate amount of dividend, paid by the company to the individual, during the financial year does not exceed INR 2,500 and such dividend is paid by an account payee cheque.

2. Dividend paid to the Life Insurance Corporation of India in respect of shares owned by it or have a full beneficial interest.

3. Dividend paid to the General Insurance Corporation of India in respect of shares owned by it or have a full beneficial interest.

4. Dividend paid to any other insurer in respect of shares owned by it or have a full beneficial interest.

5. Dividend covered by provisions of section 115-o.

6. Declaration has been filed either in Form 15G or Form 15H.

Frequently Asked Questions (FAQ) –

Q.1 Is TDS deducted on dividend income?

Ans. Yes, if the provisions of section 194 of the Income Tax Act gets attracted, TDS is required to be deducted on such dividend income.

Q.2 What percentage of TDS is deducted?

Ans. The Company liable to deduct TDS on dividend as per provisions of section 194 of the Income Tax Act is required to deduct TDS @ 10%.

Q.3 What if TDS is not deducted?

Ans. If the Company, required to deduct TDS as per section 194, fails to deduct TDS, in that case, the company would be liable to pay Interest @ 1% per month from the date on which the tax was liable to be deducted till the date of actual deduction.

Also Read-

Particulars
TCS – Tax Collection at Source – A Complete Guide
TDS Rate Chart for Financial Year 2019-2020
Section 192 – TDS on Salary
Section 192A – TDS on Premature withdrawal from EPF
Section 193: TDS on Interest on Securities
Section 194A: TDS on interest other than interest on securities
Section 194B and Section 194BB – TDS
Section 194C – TDS on Contractors
Section 194D – TDS on insurance commission
Section 194DA – TDS in respect of Life Insurance Policy
Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association
TDS under Section 194EE and Section 194F
Section 194G TDS on Commission on Sale of Lottery Tickets
Section 194H – TDS on Commission or Brokerage
Section 194I of Income Tax Act, 1961 – TDS on Rent
Section 194IA TDS on transfer of immovable property
Section 194IB – TDS on Rent paid by Individual / HUF
Section 194LA: Payment of Compensation on acquisition of certain immovable property
TDS under Section 194LB, 194LBA, 194LBB and 194LBC
Section 194LC: TDS on income by way of interest from an Indian Company or a business trust
Section 194LD TDS on income by way of interest on certain bonds and Government Securities
Section 194J TDS on Fees for Professional or Technical Services
Section 194N – TDS on Cash Withdrawals
Section 194M: TDS on Payment of certain sum by certain Individual / HUF
Section 195 TDS on payment of any other sum to a non-resident
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