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Section 194 of Income Tax Act- TDS on Dividend

Section 194 of Income Tax Act, 1961 has deal with TDS on dividend. Following are some important points mentioned in this section:

  1. Who is liable to deduct tds: 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.

2. Threshold limit: TDS will be deducted if aggregate amount of dividend in financial year is more than Rs. 5,000/-, but paid through any mode other than cash by a company.

3.When to Deduct TDS: TDS shall be deducted before making payment of dividend.

4.Rate of TDS: Tax is to be deducted at the rate of 10%. If the deductee doesn’t furnish his PAN to deductor, then TDS is to be deducted at the rate of 20%.

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

6. Exception to this section: This 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.

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