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An organization that pays a dividend on equity shares will deduct TDS under section 194.
Section 194 is made applicable from 1st April 2020 i.e. FY 2020-21 onwards.
Dividend from Equity shares:
When an organization distributes dividends to investors, the tax should be deducted on those dividends. The deducted amount must be deposited by the deductee and the TDS should be filed.
If a Shareholder is a resident of India:
Dividend income on equity shares will receive the amount after TDS under Section 194.
Dividend income on equity mutual funds will receive the amount after TDS under Section 194K.
If a shareholder is a Non-Resident of India:
Dividend income will receive the amount after the deduction of TDS under Section 195.
Time of Deduction:
As per section 194, the deductor is required to deduct the TDS
Before the Cash Payment
Before the cheque issue or warrant
Before the Distribution of Payment.
The deduction of TDS is at 10%. This is based on the number of dividends. This is applicable only if a resident shareholder’s total dividend in a financial year exceeds INR 5,000. The PAN has to be furnished along with this. In case of PAN Is not provided, TDS shall be deducted at the rate of 20%
TDS Certificate & Returns
The Deductor should file the 26Q form after depositing the TDS with the Income Tax department. After filing this report, Deductor will issue FORM16A as the Tax Credit Certificate for the amount deducted as TDS. Using the Form 16A provided by the deductor, the deductee can claim credit of the tax deducted while filing an IT Return.
Exemption from deduction of TDS on dividends–194
• When the aggregated amount of dividend paid from an organization to an individual does not exceed INR 2500 in that particular financial year, and it can be paid to investor account by cheque.
• Dividend paid to the Life Insurance Corporation of India in respect of shares owned by it or has a full beneficial interest.
• Dividend paid to the General Insurance Corporation of India with respect to shares owned with respect to have full beneficial interest.
• Dividend paid to any other insurer with respect to shares owned with has a full beneficial interest.
• Dividend covered under provisions of section 115-o.
• Declaration filed either in Form 15G or Form 15H.