Process to avoid TDS on Dividend from shares or mutual funds
Finance act 2020, introduced a new Section 194K from 1st April 2020. Section 194K allows any resident citizen to deduct the amount paid on mutual fund units, up to a certain amount. Finance act 2020 has abolished Tax on dividend paid by the company due to the abolition of the Dividend Distribution Tax (DDT), dividend income becomes taxable in the hands of taxpayers, thus tax deduction at source (TDS) becomes effective on dividend payout under section 194 of the Income Tax Act. As per section 194 TDS at the rate of 10% effective is to be deducted on dividend income of if dividend income exceeds Rs. 5,000 during a fiscal year. Where the taxpayer does not submit PAN than the TDS rate would be 20%. In this article we will learn about TDS ob dividend and steps to avoid TDS on dividend.
What is section 194- TDS on Dividend?
- As per section 194 an Indian company or a company which has made the prescribed arrangements for the declaration and payment of any dividend (including dividends on preference shares) to a shareholder, who is resident in India, is required to deduct tax at source on such Dividend income paid to the shareholder of the company.
- The company shall not deduct TDS where dividend amount do not exceed Rs. 5000.
- The company shall deduct TDS before making payment of dividend.
- Tax is to be deducted at the rate of 10% on the amount of dividend paid. If the recipient of income doesn’t furnish his PAN to deductor then TDS is to be deducted at the rate of 20%.
- Only Individual Shareholder can furnish Form No. 15G or 15H, as the case maybe.
- No deduction on dividend paid to LIC, GIC or any other connected insurer.
- The statement of return in form No. 26Q is required to be filled quarterly. The TDS certificate i.e Form No. 16A is required to be issued quarterly within 15 days from the due date for furnishing the quarterly TDS statements
What is section 194K- TDS on Dividend Income in Respect of Units of Mutual Funds?
- As per section 194K Any person who is responsible for paying to a resident any income in respect of
a) Units of a Mutual Fund or
b) Units from the Administrator of the specified undertaking; or
c) Units from the specified company,
Is required to deduct the TDS at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode
- Tax is to be deducted at the rate of 10% on the amount of dividend paid. If the recipient of income doesn’t furnish his PAN to deductor then TDS is to be deducted at the rate of 20%.
- The company shall not deduct TDS where dividend amount do not exceed Rs. 5000.
- The statement of return in form No. 26Q is required to be filled quarterly. The TDS certificate i.e Form No. 16A is required to be issued quarterly within 15 days from the due date for furnishing the quarterly TDS statements
- Only Individual Unitholder can furnish Form No. 15G or 15H, as the case maybe.
How to avoid TDS on dividend?
Where the taxable income is less than Rs 2.5 lakh, but you have paid TDS on dividends, submit Form 15G or Form 15H for individuals over 60 years old to notify the company or the share registrar and transfer agent about your tax-free income.
Assessee can find Form 15G/H on the website of the company who is paying the dividend. Fill in the following essential details:
1. The company’s name,
2. Whether shares are maintained physically or by a depository participant (DP),
3. DP ID or Client ID of the assessee, and folio number.
Individual investors should submit Form 15G or Form 15H to the company directly for dividend on their shares.
Where the assessee has opted for dividend payout option at the time of purchase of mutual fund than in such case the relevant form may be submitted directly to the Asset Management Company (AMC) or to their Registrar and Transfer Agents – such as CAMS and K-Fintech – in the case of the Dividend Payout option on Mutual Fund schemes.
