If you’re a shareholder in India receiving dividends from a company, it’s essential to understand how Tax Deducted at Source (TDS) applies under Section 194 of the Income Tax Act. Let’s break it down in straightforward terms.
What is Section 194?
Section 194 mandates that Indian companies must deduct TDS when paying dividends to resident shareholders. This means a portion of your dividend is withheld by the company and paid to the government as tax on your behalf.
When is TDS Deducted on Dividends?
TDS is deducted when:
- The dividend is credited to your account, or
- The dividend is actually paid to you,
whichever occurs first.
TDS Rates and Thresholds
- Standard TDS Rate: 10% if the total dividend exceeds ₹5,000 in a financial year.
- Higher TDS Rate: 20% if you haven’t provided your PAN to the company.
Note: As per recent updates, the threshold for TDS deduction has been increased to ₹10,000.
Exemptions from TDS
TDS is not deducted if:
- Your total dividend income in a financial year is ₹5,000 or less.
- You submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) declaring that your income is below the taxable limit.
- The dividend is paid to certain entities like:
- Life Insurance Corporation of India (LIC)
- General Insurance Corporation (GIC)
- Other insurers with full beneficial interest in the shares.
Due Dates for TDS Deposit
Companies must deposit the deducted TDS to the government:
- For April to February: By the 7th of the following month.
- For March: By April 30th.
Claiming TDS in Your Tax Return
The TDS deducted will reflect in your Form 26AS. You can claim this amount as a credit when filing your income tax return, reducing your overall tax liability.
Key Takeaways
- TDS on dividends ensures tax is collected at the source.
- Providing your PAN to the company is crucial to avoid higher TDS rates.
- Submitting Form 15G/15H can help avoid TDS if your income is below the taxable limit.
- Always check your Form 26AS to ensure TDS credits are accurately reflected.
Understanding these provisions helps in effective tax planning and ensures compliance with tax laws.
