TDS on Dividends [Section 194] – TDS Rate, Applicability, Exemptions

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Check out What is TDS on Dividends [Section 194], Who is responsible to deduct tax, When tax shall be deducted, Exemptions or relaxation from the provision, and the Rate of TDS on Dividends.

TDS on Dividends [Section 194]

The principal officer of a domestic company paying dividend u/s 2(22) to any resident shareholder is responsible to deduct tax under section 194, Income Tax Act.

TDS on Dividends [Section 194] - TDS Rate, Applicability, Exemptions

Applicability of TDS under section 194

The principal officer of a domestic company is required to deduct tax on dividend distributed or paid by it to its resident shareholders.

The provisions of tax deduction at source under section 194, therefore, applies only to dividend distributed or paid to resident shareholders.

Rate of TDS on Dividends

The rate of deduction of tax in respect of such dividend is 10%.

Rate of TDS on Dividends is 10% (No surcharge, health and education cess) on dividend considered u/s 2(22) [From 14-05-2020 to 31-03-2021: 7.5%]

In order to provide more funds at the disposal of the taxpayers for dealing with the economic situation arising out of COVID-19 pandemic, the rate of TDS u/s 194 has been reduced from 10% to 7.5% (i.e., 3⁄4th of the specified rate) for the period from 14th May, 2020 to 31st March, 2021 [Section 197B].

Time of tax deduction at source

The deduction of tax has to be made before making any payment by any mode in respect of any dividend or before making any distribution or payment to a resident shareholder of any amount deemed as dividend under section 2(22)(a)/ (b)/(c)/(d)/(e).

Non-applicability of TDS under section 194

(i) No tax is to deducted in case of a shareholder, being an individual, where –

  • the dividend is paid by any mode other than cash; and
  • the amount of such dividend or aggregate of dividend distributed or paid or likely to be distributed or paid during the financial year by the company to such shareholder does not exceed ₹5,000.

(ii) The TDS provisions will not apply to such dividend credited or paid to LIC, GIC, subsidiaries of GIC or any other insurer provided the shares are owned by them, or they have full beneficial interest in such shares.

Exemption or relaxation from the provision

When the recipient applies to the Assessing Officer in Form No. 13 and gets a certificate authorizing the payer to deduct tax at lower rate or deduct no tax [Refer sec.197]

When a declaration in Form 15G (in duplicate) is furnished by the assessee to the payer [Refer sec.197A