TDS on Dividends
RESIDENT SHAREHOLDERS
i) Tax Deductible at Source for resident shareholders
| Sr. No. | Particulars | Rate of Deduction of Tax at Source | Documents Required (if any) |
|---|---|---|---|
| 1 | Valid PAN updated in the Company’s Register of Members | 10% | No document is required (if no exemption is sought) |
| 2 | No PAN/Valid PAN not updated in the Company’s Register of Members | 20% | No document is required (if no exemption is sought) |
| 3 | Availability of lower/nil tax deduction certificate issued by Income Tax Department u/s 197 of Income Tax Act, 1961 | The rate specified in the Certificate | Lower/nil tax deduction certificate obtained from Income Tax Authority |
ii) No Tax Deductible at Source on dividend payment to resident shareholders if the shareholders submit and register the following documents with the Company/Company’s RTA – MUFG Intime India Private Limited (previously known as Link Intime India Private Limited)
| Sr. No. | Particulars | Rate of Deduction of Tax at Source | Documents Required (if any) |
|---|---|---|---|
| 1. | Submission of Form No. 15G/15H | NIL | Declaration in Form No. 15G (applicable to any person other than a company or a firm)/ Declaration in Form No.15H (applicable to an Individual 60 years and above), fulfilling certain conditions.
Alternatively, these forms can be downloaded from the Income Tax website. |
| 2. | Securitisation Trust | NIL | A copy of the registration/ document evidencing the shareholder as a securitisation trust (as defined in clause (d) of the Explanation below section 115TCA). |
| 3. | Shareholders to whom section 194 of the Income Tax Act, 1961 does not apply, such as LIC, GIC, etc. | NIL | Documentary evidence that the said provisions are not applicable. |
| 4. | Shareholders covered u/s 196 of the Income Tax Act, 1961, such as the Government, RBI, corporations established by the Central Act & mutual funds specified u/s 10(23D) of the Income-tax Act, 1961. | NIL | Documentary evidence for coverage u/s 196 of the Income Tax Act, 1961 |
| 5. | Category I and II Alternative Investment Fund | NIL | SEBI AIF registration certificate to claim benefit u/s 197A (1F) read with section 10(23FBA) of the Income Tax Act, 1961 |
| 6. |
|
NIL | Necessary documentary evidence as per Circular No. 18/2017 issued by the Central Board of Direct Taxes (CBDT) |
| 7. | National Pension System Trust referred to in section 10(44) of the Income-tax Act, 1961 | NIL | No TDS as per section 197A (1E) of the Income Tax Act, 1961 |
iii) The Finance Act of 2021 inserted a new section, section 206AB, as a special provision providing higher TDS rates for non-filers of income tax returns. The said section came into effect from July 1, 2021. The provisions of section 206AB of the Income-tax Act, 1961 (‘the Act’), as amended from April 1, 2022, provide for higher rates of withholding tax in the cases where the recipient /deductee is a ‘Specified person’ as per the provisions of the Income Tax Act, 1961.
Higher rates of TDS for section 206AB of the Act:
The TDS rate for payments made to the specified persons stated above shall be the higher of the following:
- at twice the rate specified in the relevant provision;
- at twice the rate in force or
- at the rate of 5%.
Suppose the provision of section 206AA of the Act (deduction of tax at a higher rate for non-furnishing of PAN by the deducted) applies to a specified person, in addition to the provision of this section. In that case, the tax shall be deducted at the higher of the two rates provided in this section and section 206AA of the Income-tax Act, 1961.
‘Specified person’ means a person who –
- has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit to furnish a return of income under section 139(1) of the Act has expired; and
- The aggregate TDS and TCS in his case were INR 50,000 or more in the previous year.
Further, DIT (Systems) vide Notification no. 1 of 2022 pursuant to CBDT circular no. 11 of 2021 and circular no. 10 of 2022 notified a functionality “Compliance Check for Sections 206AB & 206CCA” on the reporting portal of the Income-tax Department to facilitate the tax deductor/collector to check if the deductee/collectee is a ‘specified person’ under Section 206AB.
In view of the above, the Company would check whether a shareholder is a ‘specified person’ under section 206AB. If any shareholder is found to be a ‘specified person’ as defined in Section 206AB, then the company shall be liable to deduct tax at source at a higher rate in such case.
Furthermore, as per the circular issued on April 23, 2024 (CBDT Circular No. 6/2024), the Central Board of Direct Taxes (CBDT) outlined the regulations and potential consequences of not linking PAN with Aadhaar. If PAN is not linked with his or her Aadhaar on or before May 31, 2024, it is to be noted that as per the current regulations Tax Deducted at Source (TDS) is mandated to be deducted at twice the usual rate.