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 was 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 amendment to the existing Section 194 to add provision to deduct TDS on Dividend from Equity Shares.

The Company paying a dividend on equity shares should deduct TDS u/s 194. The deduction is @ 10% on the amount of dividend, only if a resident shareholder’s total dividend in a financial year exceeds Rs. 5,000. Sec 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

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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.

  • 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.

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