1. Who is responsible to deduct tax u/s 194?

The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of any dividend (including dividends on preference shares) to a shareholder, who is resident in India, is required to deduct tax at source. Finance Act, 2021 added two additional categories

w.e.f 01.04.2021 which will be exempted from deduction of tax source from dividends: – A business trust as defined in clause (13A) of section 2, by special purpose vehicle referred to in Explanation to clause (23FC) of Section 10 – any other person notified by the Central Government in the Official Gazette in this behalf.

Section 194 - TDS on payment of dividend

2. What is threshold limit u/s 194 of Income Tax Act, 1961?

No deduction upto Rs. 5000, if dividend is paid by any mode, other than cash. 

3.When to Deduct TDS under Section 194?

Such tax shall be deducted before making payment of dividend.

4.Rate of TDS under Section 194

Tax is to be deducted at the rate of 10% (7.5% w.e.f. 14.05.2020 to 31.03.2021). If the recipient of income doesn’t furnish his PAN to deductor, then TDS is to be deducted at the rate of 20%.

5.Other Points-

Only Individual Shareholder can furnish Form No. 15G or 15H, as the case maybe.

  • No deduction on dividend paid to LIC, GIC or any other connected insurer.

Summary

Particular Rate of TDS Remarks
Resident Shareholders
  • 10% (presently reduced to 7.5% until 31st March 2021) if dividend amount exceeds INR 5,000
  • 20% in absence of PAN
♦ No TDS if Form 15G/15H submitted

♦ No TDS for specified Insurance companies/Mutual Funds and AIF

Non Resident Shareholders (Other than FPI) 20% plus applicable surcharge and cess or rates as per DTAA whichever is beneficial ♦ Surcharge restricted to maximum 15%

♦ TRC to be obtained with declaration for PPT, beneficial ownership, No PE/POEM in India

FPI 20% plus applicable surcharge and cess  
Compliance Requirements ♦ Filing TDS Return and Issuing TDS Certificates

♦ Form 15CA in case of all payment to Non Residents

♦ CA Certificate in Form 15CB in case payment to Non Residents exceeds INR 5 Lakhs

TDS on payment of dividend

Extract of Section 194 – TDS on payment of dividend

194. The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment [by any mode] in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax [at the rate of ten per cent] :

Provided that no such deduction shall be made in the case of a shareholder, being an individual, if—

(a) the dividend is paid by the company by [any mode other than cash]; and

(b) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed [five thousand] rupees:

Provided further that the provisions of this section shall not apply to such income credited or paid to—

(a) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or in which it has full beneficial interest;

(b) the General Insurance Corporation of India (hereafter in this proviso referred to as the Corporation) or to any of the four companies (hereafter in this proviso referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest;

(c) any other insurer in respect of any shares owned by it or in which it has full beneficial interest;

(d) a “business trust”, as defined in clause (13A) of section 2, by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10;

(e) any other person as may be notified by the Central Government in the Official Gazette in this behalf.]

(Republished with amendments)

Read Also:-

SECTION TAXGURU LINKS
192 Section 192 TDS on Salary- Analysis
192A Section 192A | TDS on Payment of Accumulated balance due to an Employee
193 Section 193 TDS from Interest on Securities – Analysis
194 Section 194 TDS on payment of dividend
194A Section 194A TDS on Interest (other than Interest on Securities)
194B Section 194B TDS on winnings from Lottery, Game Shows & Puzzle etc
194BB Section 194BB TDS on Winning from Horse Races
194C Section 194C TDS on Payment to Contractor
194D Section 194D TDS on Insurance Commission- Analysis
194DA Section 194DA TDS on Payment in respect of Life Insurance Policy
194E Section 194E TDS on Payments to Non-Resident Sportsmen or Sports Association
194EE Section 194EE TDS on Payments in respect of Deposit under NSS
194F Section 194F TDS on Payments on account of repurchase of units by Mutual Fund or UTI
194G Section 194G TDS on Commission on Sale of Lottery Tickets- Analysis
194H Section 194H TDS on Commission & Brokerage- Analysis
194I Section 194I TDS on Rent – Analysis
194-IA Section 194IA TDS on Purchase of Immovable Property
194-IB Section 194IB TDS on Rent of Property
194-IC Section 194IC TDS on Payment Made Under Specified Agreement
194J Section 194J TDS on Professional or Technical Fees
194K Section 194K TDS on Income In Respect of Units of Mutual Fund
194-LA Section 194LA TDS on Payments of Compensation on Acquisition of certain Immovable Property
194-LB Section 194LB TDS on Income by way of Interest from Infrastructure Debt Fund 
194-LBA Section 194LBA TDS on Certain Income from Units of a Business Trust
194-LBB Section 194LBB TDS on Income in Respect of Units of Investment Fund
194-LBC Section 194LBC TDS on Income in Respect of Investment in Securitization Trust
194-LC Section 194LC | TDS on Interest Income from Indian Company or Business trust
194-LD Section 194LD TDS on Interest Income on certain Bonds/Government Securities
194M Section 194M TDS on payments of certain Sums by Individual & HUF
194N Section 194N TDS on cash withdrawal from banks/post offices
194O Section 194O TDS on E-commerce Operator- Analysis
194P Section 194P Deduction of tax in case of specified senior citizen
194Q Section 194Q Deduction of tax at source on payment of certain sum for purchase of goods
195 Section 195 TDS on Non-Resident Payments
195A Section 195A Income Payable ‘Net of Tax’
196B Section 196B TDS on long term capital gains from units referred to in section 115AB
196C Section 196C TDS on Income from foreign currency bonds or GDRs
196D Section 196D TDS on Income of foreign institutional investors from securities
197 Section 197 Certificate For TDS Deduction at Lower Rate
197A Section 197A – No TDS Deduction – Form 15G & Form 15H
198 Section 198 Tax Deducted at Source shall be deemed to be income received
200 (1) & (2) Section 200(1) & (2) Time Limit for Deposit of Tax Deducted at Source
200 (3) Section 200(3) Forms & Time Limit for Submitting Quarterly TDS Returns
203 Section 203 TDS Certificate
200A Section 200A Processing of Statements of Tax Deducted at Source
201 Section 201 Consequences of Non-Compliance to TDS
203A Section 203A Tax Deduction And Collection Account Number
206AA Section 206AA Mandatory Requirement of Furnishing PAN-TDS
206AB &
206CCA
Section 206AB & 206CCA Higher Rate of TDS/TCS in Case of Non-Filers of Return
206C Section 206C Tax Collection at Source (TCS)
206CC Section 206CC Mandatory Requirement of Furnishing PAN
40(a)(i) Disallowance for Non deduction of Tax at Source

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12 Comments

  1. PROSENJIT SARKAR says:

    Dear Sir,
    Is Honorarium liable for TDS deductions ?
    If Yes, what will be the section of Income Tax ?
    What documentation need to be kept with us if any quarry arises that deductions are done under correct section ?

  2. Balkrishan Kaushik says:

    Sir, I got rs 169000 as dividend after deducting DDT from company. Please tell me 169000 rs is deductable under income tax or not and what percentage.

  3. Bimalendu Sarkar says:

    If my interest income from Bank FD is Rs.100,000/, Bank deducted Rs.10,000/- as TDS and credited rest amount interest Rs. 90,000/- to my Savings Bank Account.
    Which amount will become in my taxable income?
    Rs.90,000/- or Rs.100,000/-?
    Thank you.

    1. NITHYA says:

      Sir,
      Your taxable income will be FD interest of Rs.1,00,000. You have to mention this amount under the head of Income from other sources. If you have no other taxable income, then you will get a refund.

  4. JOBISH says:

    Can allow such dividend as expenses. otherwise double taxation will be applicable to such dividend. if am not deducted TDS , whats the consequences?

  5. sunil gangwani says:

    Sir my client invest 50 lac in Zee through Pre NCD Debenture co promise to return 25% every every with dividend a y 2021-22 dividend taxable and Zee co shown in 26AS dividend Plus Principal Amount Please cooprate me to file income tax return because dividend only 2.50k and 26as shown 15L

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