TDS on Dividend AY 2026-27
Introduction
Every Indian company making payments of dividends is required to deduct tax at source (TDS) under Section 194 at the rate of 10%. The deduction applies at the time of distribution or payment of dividends.
Scope of TDS on Dividends
- Deductor:Any Indian company or a company making arrangements for dividend declaration and payment in India.
- Deductee:A resident shareholder. For non-resident shareholders, TDS is deducted under Section 195.
- Threshold Limit:TDS is deducted if the total dividend paid to an individual shareholder (other than in cash) exceeds Rs. 10,000 in a financial year. No threshold applies to other payees.
- Timing of Deduction:TDS is deducted at the time of payment. In the case of deemed dividends, TDS is deducted at the time of distribution or payment.
TDS Rates
- Standard Rate:10% (without surcharge or cess).
- If PAN is Not Provided:TDS is deducted at the rate under Section 206AA.
Exemptions from TDS
TDS is not deducted in the following cases:
- Dividend to Small Individual Shareholders:No TDS if the dividend does not exceed Rs. 10,000 in a financial year and is paid in non-cash mode.
- Dividend to Specified Insurance Companies:Exempt for LIC, GIC, and other notified insurers.
- Dividend to Business Trusts:No TDS on dividends paid by a Special Purpose Vehicle (SPV) to a business trust.
- Dividend in IFSC Units (Aircraft Leasing Business):Exemption applies if both payer and payee IFSC units are engaged in aircraft leasing, subject to declaration in Form No. 1. [Notification No. 52/2023, dated 20-07-2023]
- Dividend to Specified IFSC Units:Exemption applies to finance companies, finance units, and broker-dealers in IFSC, subject to declaration in Form No. 1. [Notification No. 28/2024, dated 07-03-2024]
- Dividend to Notified Persons:The government may notify entities entitled to receive dividends without TDS.
Compliance Requirements
- Nil or Lower Deduction Certificate:The recipient may apply under Section 197 for lower TDS or submit a self-declaration under Section 197A.
- TDS Deposit:TDS must be deposited within seven days from the end of the deduction month, except for March, which is due by April 30. Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statements:Quarterly TDS statements must be filed using Form 26Q.
- TDS Certificate:Form 16A must be issued within 15 days from the due date of the TDS return.
Penalties for Non-Compliance
- Failure to Deduct/Deposit TDS:Liable for interest under Section 201 and penalty under Section 271C.
- Late Filing of TDS Statements:Fee of Rs. 200 per day under Section 234E, plus penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificates:Subject to penalties under Section 272A.