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Section 194 : TDS on Dividend from Equity Shares

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Sakshi Shah

Equity Trading
Form 16A
Form 26Q
Sec 194
TDS Sections

Under Budget 2020 applicable from 1st April 2020 i.e. FY 2020-21, the Finance Minister abolished Dividend Distribution Tax (DDT). As a result, the dividend received on equity shares and mutual funds which were earlier exempt is now taxable at slab rates. It is taxable in the hands of the shareholder. Since the income would be taxable in the hands of the shareholder, TDS would be applicable. As a result, the Finance Minister made an amendment to the existing Section 194 to add a provision to deduct TDS on Dividend from Equity Shares.

The Company paying a dividend on equity shares should deduct TDS under section 194. The deduction is at 10% on the number of dividends, only if a resident shareholder’s total dividend in a financial year exceeds INR 5,000. Section 194 is applicable from 1st April 2020 i.e. FY 2020-21 onwards.

Sec 194 TDS on Dividend from Equity Shares
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Section 194 – TDS on Dividend from Equity Shares

TDS Return (26Q) for Non-Salary Payments (Quarterly)
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TDS Return (26Q) for Non-Salary Payments (Quarterly)
CA Assisted TDS return filing for employers, firms and companies making payment of Professional fees, Rent, Contracts, Commission, etc.
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FAQs

Is TDS required to be deducted on dividend paid to NRI shareholder ?

Section 195 applies to the dividend paid to NRI investors/shareholders, as per provisions of the Income Tax Act. Hence, TDS needs to be deducted on the dividend at 20% on equity shares and equity mutual funds. Therefore, TDS has to be deducted at 10% as per Sec 194 and Sec 194K for an NRI shareholder.

What is Dividend Distribution Tax (DDT) ?

DDT is the tax paid on declaration, distribution or payment of dividend by an Indian Company at the rate of 15%. Since the Indian Company pays DDT, the dividend income is exempt in the hands of the shareholder or investor.
However, the Budget 2020 applicable abolished DDT from 01.04.2020 i.e. FY 2020-21. The dividend is now taxable in the hands of the shareholder or investor. The company is liable to deduct TDS at 10% if the dividend is in excess of Rs. 5000.

  • Kamal Narayana Reddy N says:

    What happens to the tds on dividend received from XYZ Co., to a stock broker directly where the shares are lying in the pool account actually belongs to certain traded clients.

    For EG:

    If a stock broker receives an amount of Rs.9250/- from XYZ Co., as the shares are lying in the pool account, after deducting TDS of Rs.750/- (Total Dividend Declared is Rs.10000/-) and this Dividend belongs to 2 clients of Rs.7000/- and Rs.3000/-

    How the TDS is to be transferred to the respective clients as per their eligible dividend.

  • Vaishali says:

    TDS can be transferred only at the year end when the Broker Company files the return and claims therein that the TDS credit does not belong to it but gives the PAN reference of the shareholder / beneficiary of the shares. The shareholder / beneficiary will also be required to claim this credit in the return of income filed, even though the same may not appear in his Form 26AS.

    • Sakshi Shah says:

      In the case of Equity Shares, the Company would transfer the dividend to the shareholder after deduction of TDS at 10% under Section 194. The shareholder can claim the credit of TDS on dividend while filing the Income Tax Return. The TDS credit is reflected in Form 26AS.
      Read more about Income Tax on Dividend here – https://blog.quicko.com/tds-on-dividend-paid-in-fy-2020-21

  • S.K.Kini says:

    Query – If a company had declared and paid a large interim dividend for the f.y 2019-2020 before March 2020 and declares a small final dividend after March which is such that a share holder receives less than Rs5000/-, is the company suppose to deduct TDS on the final dividend because clubbing both interim dividend paid before March and now being paid works out more than Rs5000/-?

    • Sakshi Shah says:

      As per Section 194 & Section 194K, TDS is required to be deducted at the time of credit of dividend or payment of dividend whichever is earlier. This provision is applicable for any dividend paid on or after 1st April 2020. Thus, if the dividend paid after March 2020 does not exceed INR 5000, TDS is not applicable on the same.

  • Rajnikant Chunilal mehta says:

    Can HUF share holder submit form 15 G / H not to deduct TDS on dividend ?

  • Krishan Chander Dalal says:

    The companies are now deducting TDS @7.5% on dividend if it is more than 5,000/-. Is there any
    change in instructions of the govt. If the rate of tax has also been changed?

    • Anushka Shah says:

      The TDS rate as per Section 194 is 10%. However, the rate for FY 2020-21 has been reduced to 7.5% as per the tax changes announced due to COVID-19.

  • Mayank says:

    Hi I am a student and new to stock market. I have a small query. I am confused whether this exemption of Rs 5000 is applicable for one company or for each company where i have invested.
    Suppose i receive dividend from 10 different companies for a total of Rs 49,000 but none of the dividends exceed Rs 5000. Does it mean that no TDS will be deducted?

    • Anushka Shah says:

      Hey Mayank,
      The limit of INR 5,000 is for the total dividend in a financial year received by a shareholder from a single Company. If you are receiving dividend from multiple companies, the limit of INR 5,000 would apply for dividend from each company or AMC. In your case, if the dividend from one company is less than 5000, TDS will not be deducted.Yet, some companies deduct TDS on dividend irrespective of the amount.

  • Lakshya says:

    My broker has deducted TDS at 7.5%, is he liable to file TDS return and issue me TDS certifcate? like Form 16A?

    But when i insist him to do so, he seems reluctant. So what should I do

    • Maharshi Shah says:

      Since the broker has deducted TDS on dividend, he must deposit the TDS with the government and file the TDS return i.e, Form 26Q. After filing the TDS return, he should download Form 16A i.e, TDS certificate and shares it with you. Alternatively, you can check the TDS credit in form 26AS. Form 26AS available in your account on the Income Tax Website.

  • Shubham says:

    Suppose the Company have declared Interim dividend for FY 2019-20 on 15-03-2020 and the amount of Rs 20,000/- was credited to the shareholder account on 20-April-2020. So now if the TDS provisons will be applicable or Sec 115-O.

    • Maharshi Shah says:

      TDS is required to be deducted at the time of credit of payment to the deductee’s account or at the time of payment whichever is earlier. Since the dividend is declared in FY 2019-20 but paid in FY 2020-21, TDS would be applicable as per Section 194 and the dividend income would be taxable in the hands of the shareholder.

  • Lakshya says:

    Hello All,

    Can I have format of the TDS certificate/ Form 16A please? coz my broker is requesting for a format for the same.

  • Gurudath says:

    We have received dividend from Pfizer in May where tax was deducted but nothing is appearing in Form 26AS even now. What to do?

    • Anushka Shah says:

      Hey Gurudath,
      Under Budget 2020 applicable from 1st April 2020 i.e. FY 2020-21 the Company paying a dividend on equity shares exceeding INR 5,000 should deduct TDS under section 194.
      If your company has deducted tax while distributing divided but you are unable to view the same in 26AS, you can ask your company for form 16A.
      Using Form 16A, you can claim credit of the tax deducted while filing Income Tax Return.

  • TRIPTI KUMAR MONDAL says:

    My Co. have deduct @20% TDS on divident paid below Rs.5000/- on NRI
    and in case of Resident Indian Deduct TDS @7.50% on divident paid below Rs.5000/- .
    Is it correct.

    • Anushka Shah says:

      Hey Tripti,
      NRI investors/shareholders earning dividend income will receive the amount after deduction of TDS under Section 195. Under Sec 195, TDS at the rate of 20% will be applicable on income from the investment made by NRI Citizen (individual). There is no threshold limit under section 195 of Income Tax Act, hence TDS will be deducted from the entire income/amount.
      In case of resident, if the dividend income is below INR 5,000, TDS will not be applicable.

      Read more about TDS Rates for NRIs on our Learn Center.

  • TRIPTI KUMAR MONDAL says:

    U/S 194 of IT Act no TDS will be attract on Divident below Rs.5000/- so here also no TDS will be deduct on Divident paid below Rs.5000/- for Resident Indian and for NRI the same rule should be follow as U/S 194 of IT Act is silent on this point.

  • Barun kumar Hensh says:

    If dividend income is received but no tax is deducted but shown in form 26AS. How I shown in income tax return for a. yr. 2020-21. I submit in previous year in ITR 1,in this year I. e a. y 2020-21 also sumit in ITR 1.Kindly clarify.

    • Aakash (Quicko Customer Success Representative) says:

      Hello,

      Dividend income is not taxable for AY20-21 but needs to be reported in Income from Other Sources.

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