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August 28, 2020

Shareholders know TDS Rate on Dividends and how to claim Exemption from 1 April 2020

by CA Shivam Jaiswal in Corporate Law, Income Tax, Stock Market

Shareholders know TDS Rate on Dividends and how to claim Exemption from 1 April 2020

Many Companies have started sending letters and reminders for Submission of Tax exemption forms by Shareholders

As you are aware that as per the Income Tax Act, 1961, as amended by the Finance Act, 2020, dividends paid or distributed by a Company after April 1, 2020 shall be taxable in the hands of the shareholders.

The Company shall therefore be required to deduct tax at source at the time of making the payment of the said Dividend, if declared at the AGM or otherwise

Applicable TDS deduction rates on dividend for various categories of shareholders (Resident and Non-resident) are explained under Table 1 and Table 2

Exemptions available from TDS deductions as per the Income Tax Act or as governed by Notifications / Orders of competent authorities etc. and

The TDS rate may vary depending on the residential status of the shareholder and the documents submitted to the Company in accordance with the provisions of the Act. The TDS for various categories of shareholders along with required documents are provided in Table 1 and 2 below:

Table 1: Resident Shareholders

Category of ShareholderTax Deduction RateExemption Applicability/ Documents required
Any resident shareholder7.5%Update the PAN if not already done with depositories (in case of shares held in demat mode) and with the Company’s Registrar and Transfer Agents                                                                              No deduction of taxes in the following cases – ·    
If dividend income to a resident Individual shareholder during FY 2020-21 does not exceed INR 5,000/-,
If shareholder is exempted from TDS provisions through any circular or notification and provides an attested copy of the PAN along with the documentary evidence in relation to the same.
Submitting Form 15G / Form 15HNILEligible Shareholder providing Form 15G (Annexure 1a) (applicable to any person other than a Company or a Firm) / Form 15H (Annexure 1b) (applicable to an Individual above the age of 60 years) – on fulfilment of prescribed conditions.
Order under section 197 of the ActRate provided in the orderLower/NIL withholding tax certificate obtained from Income Tax authorities.  
Insurance Companies: Public & Other Insurance CompaniesNILSelf-declaration that it has full beneficial interest with respect to shares owned, along with self-attested copy of PAN card and registration certificate (Annexure 2)
Corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income- tax on its income.NILDocumentary evidence that the person is covered under section 196 of the Act. (Annexure 2)
Mutual FundsNILSelf-declaration that they are specified in Section 10 (23D) of the Income Tax Act, 1961 along with self-attested copy of PAN card and registration certificate (Annexure 2)  
Alternative Investment fund (AIF) established/ incorporated in India –NILDocumentary evidence that the person is covered by Notification No. 51/2015 dated 25 June 2015 (OR) Self declaration that its income is exempt under Section 10 (23FBA) of the Income Tax Act, 1961 and they are governed by SEBI regulations as Category I or Category II AIF along with self-attested copy of the PAN card and registration certificate (Annexure 2)
Recognized Provident FundNILSelf-attested copy of a valid order from Commissioner under Rule 3 of Part A of Fourth Schedule to the Act, or self-attested valid documentary evidence (e.g. relevant copy of registration, notification, order, etc.) in support of the provident fund being established under a scheme framed under the Employees Provident Funds Act, 1952 needs to be submitted. (Annexure 2)
Approved Superannuation Fund / Approved Gratuity FundNILSelf-attested copy of valid approval granted by the Commissioner needs to be submitted : a) under Rule 2 of Part B of Fourth Schedule to the Act (In case of Approved Superannuation Fund) b) under Rule 2 of Part C of Fourth Schedule to the Act (In case of Approved Gratuity Fund) (Annexure 2)
National Pension SchemeNIL 
Other resident shareholder without PAN/Invalid PAN20% 

Please Note that:

a)   Recording of the valid Permanent Account Number (PAN) for the registered Folio/DP id-Client Id is mandatory. In absence of valid PAN, tax will be deducted at a higher rate of 20% as per Section 206AA of the Act.

b)   Shareholders holding shares under multiple accounts under different status / category and single PAN, may note that, higher of the tax as applicable to the status in which shares held under a PAN will be considered on their entire holding in different accounts.

 Table 2: Non-resident Shareholders

Category of ShareholderTax Deduction RateExemption Applicability/ Documents required
Any non-resident shareholder20% (plus applicable surcharge and cess) or Tax Treaty rate whichever is lowerNon-resident shareholders may opt for tax rate under Double Taxation Avoidance Agreement (“Tax Treaty”). The Tax Treaty rate shall be applied for tax deduction at source on submission of following documents to the company ·  Self attested Copy of the PAN Card, if any, allotted by the Indian authorities. If the PAN is not allotted, please provide your email address, contact number, tax identification number allotted in the country of residence and address in country of residence ·  Self-attested copy of Tax Residency Certificate (TRC) valid as on the AGM date obtained from the tax authorities of the country of which the shareholder is resident ·  Self-declaration in Form 10F in the attached form. (Annexure 3) ·   Self-declaration confirming not having a Permanent Establishment in India, eligibility to Tax Treaty benefit and do not / will not have place of effective management in India.(Annexure 4) TDS shall be recovered at 20% (plus applicable surcharge and cess) if any of the above-mentioned documents are not provided. The Company is not obligated to apply the Tax Treaty rates at the time of tax deduction/withholding on dividend amounts. Application of Tax Treaty rate shall depend upon the completeness of the documents submitted by the non-resident shareholder and are in accordance with the provisions of the Act.
Foreign Institutional Investors, Foreign Portfolio Investors              (FII, FPI)20% (plus applicable surcharge and cess) None
Submitting Order under section 195(3) /197 of the ActRate provided in the OrderLower/NIL withholding tax certificate obtained from Income Tax authorities.

Note: The Shareholders holding shares under multiple accounts under different status / category and single PAN, may note that, higher of the tax as applicable to the status in which shares held under a PAN will be considered on their entire holding in different accounts.

Annexure are draft format of listed entity HPCL. You need to suitably modify depending upon requirements of your company

Kindly note that the aforesaid documents as explained in the Tables 1 and 2 above are required to be to be submitted to the Company / Registrar in order to enable the Company to determine and deduct appropriate TDS / withholding tax rate.

It may be further noted that in case the tax on Dividend is deducted at a higher rate in the absence of receipt of the aforementioned details /documents from you, there would still be an option available with you to file the return of income and claim an appropriate refund, if eligible for FY 2020-21 AY 2021-22

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