Section 194 of the Income Tax Act, 1961, governs Tax Deducted at Source (TDS) on dividend payments made by companies to shareholders.
1. Key Provisions
| ASPECT | DETAILS |
| Applicability | Dividend payments ≥ ₹5,000 (per shareholder, per year) |
| TDS Rate | 10% (if PAN provided) 20% (if PAN not provided) |
| Exemptions | – Dividends ≤ ₹5,000 in a financial year – Payments to government entities, LIC, mutual funds |
| Due Date for Deposit | 7th of next month (e.g., July TDS by August 7) |
2. Who Deducts TDS?
- Domestic companiespaying dividends to shareholders.
- Mutual funds(for dividend payments to investors).
3. How to Avoid/Lower TDS?
✅ Submit Form 15G/15H (if total income is below taxable limit).
✅ Apply for Lower TDS Certificate (Form 13) under Section 197.
4. Compliance Requirements
-
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato shareholders.
Penalty: Late deduction attracts interest @ 1% per month.
Example
- Dividend Paid: ₹10,000 to Mr. Sharma (PAN provided).
- TDS Deducted: ₹1,000 (10%).
- Net Payment: ₹9,000.
