Audit Due: Sep 30 | Non-Audit Due: Jul 31 | Avoid ₹5,000 Penalty
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- Updated On : June 25, 2025
Complete Guide to TDS on Dividend under Section 194 – DisyTax
TDS on dividend payments is governed by Section 194 of the Income Tax Act, 1961. This section mandates that companies must deduct TDS before paying dividends to resident shareholders. In this article, DisyTax explains the complete mechanism, compliance, and exemptions under Section 194.
What is Section 194?
Section 194 requires domestic companies to deduct tax at source before making dividend payments to resident shareholders, provided the amount exceeds a specified threshold. It came into active effect after the abolition of Dividend Distribution Tax (DDT) via Finance Act 2020.
Who is Required to Deduct TDS?
- Any Indian company declaring or paying dividend to a resident shareholder.
- Mutual Funds or business trusts are not covered under this section.
TDS Rate under Section 194
- 10% – If PAN is furnished by the shareholder.
- 20% – If PAN is not provided under Section 206AA.
- No surcharge or cess is added to this TDS rate.
Threshold Limit
No TDS is required if the dividend amount paid or likely to be paid during the financial year does not exceed ₹5,000 per shareholder.
Exemptions from TDS under Section 194
- Dividend paid to LIC, GIC, or any other insurer with full beneficial interest.
- Dividend paid to government, RBI, or notified institutions.
- Dividend paid to mutual funds covered under Section 10(23D).
Form 15G/15H for Non-Deduction
Resident individuals whose total income is below the taxable limit can submit Form 15G or 15H to the company and avoid TDS deduction on dividends.
Example
Due Dates for TDS Deposit & Return
- Deposit TDS: On or before 7th of the next month.
- Quarterly TDS Return: File in Form 26Q every quarter.
- Issue TDS Certificate: Form 16A to be issued quarterly.
Common Errors & Solutions
- Error: Not deducting TDS where dividend > ₹5,000 → Solution: Track cumulative dividend.
- Error: Non-collection of PAN → Solution: Collect PAN or deduct @20%.
- Error: Late filing → Solution: Automate compliance reminders.