TDS on Dividend: Resident And Non Resident Investors

Income Tax

As per the Income Tax Act, 1961, dividends received from a company will be taxable for the investors/shareholders. So, there will be a TDS deduction while paying the interim dividend. The TDS rate varies based on every investor’s residential status and submitted documents. To know more, keep reading!

TDS on Dividend for Resident Investors  

As per Section 194 of the Income Tax Act, the TDS rate will be as follows:

No tax deduction will be applicable for dividends paid to resident investors if their dividend income, including an interim dividend in FY 2021-22, doesn’t go beyond Rs. 5,000 or where investors provide Form 15H/Form 15G. 

Resident investors can also furnish other documents as specified by the Income Tax Department to claim nil/lower tax. Permanent Account Number is compulsory for investors submitting Form 15H/15G or any such documents. 

About Form 15H and Form 15G

Under Section 197A(1C) of the Income Tax Act, Form 15H is applicable for individuals aged above 60 years and who don’t have any tax liability on their income. 

Similarly, as per sub-sections (1A) and (1) of Section 197A, Form 15G is applicable for individuals (not firms or companies) who don’t have any tax liability on their income. Furthermore, income should not exceed the tax exemption limit. Investors, based on their suitability, can use both these forms to avoid TDS deduction.  

TDS on Dividend for Non-Resident Investors 

As per Section 195 of the Income Tax Act, dividend income will be taxable for non-resident shareholders. The tax rate will be 20% (including cess and surcharge), or as the Government of India specifies. 

However, under Section 90, non-resident investors can opt for the provisions related to DTAA (Double Tax Avoidance Agreement) read with MLI between the nation of tax residence of an investor and India. Here, MLI stands for Multilateral Instrument. To claim tax benefits under this provision, non-resident investors should furnish the following documents:

• Self-attested photocopy of PAN that the Indian Income Tax Department has allotted 
• Self-declaration through Form 10F 
• Self-attested photocopy of TRC (Tax Residency Certificate) received from the Income Tax Department of a nation of which the investor is a resident 
• Self-declaration, specifying the following:

1. An investor doesn’t have a permanent establishment or a taxable presence in India in FY 2021-22. 
2. An investor is the ultimate owner of a company’s share and dividend income.
3. An investor need not believe that his/her claim for tax benefits is impaired in any way 
4. A shareholder can opt for the DTAA rate to reduce the tax burden on dividend income from a company.
5. An investor is and will be a tax resident individual of his/her country of residence. 

For foreign portfolio investors/foreign institutional investors, a tax deduction is applicable as per Section 196D at the rate of 20% (including cess and surcharge) or at a rate specified in the required DTAA read with Multilateral Instrument. A shareholder needs to choose the more fruitful option between the two, provided he/she submits the above-mentioned documents. 

Shareholders can avail the beneficial DTAA rate subject to the company’s satisfactory review in relation to the documents furnished. 

Also Read: Section 206AA Of The Income Tax Act

Applicability of Section 206AB 

With effect from July 1 2021, Section 206AB of the Income Tax Act deals with special TDS provisions concerning taxpayers who didn’t file their ITR. The higher of the below-mentioned rates will be applicable as a deduction for payments to specific individuals: 

• 5%
• Double the rates or rate in force 
• Double the rate prescribed in the required provision of the Act 

If Sections 206AB and 206AA are both applicable, that is, an investor hasn’t furnished PAN and filed the ITR, the higher of the 2 specified rates under these sections will be applicable as a deduction.   

As per Section 206AB(3), a specific individual implies the following:

• A shareholder who has failed to file ITR for the last 2 years instantly before the preceding year during which tax deduction is required, for which the due date of ITR filing under Section 139(1) has expired
• In cases where the aggregate of TCS and TDS is Rs. 50,000 or above in the 2 preceding years 

Also Read: How To Pay Income Tax Online?

Final Word 

Since April 1 2020, TDS on dividend income has been introduced for the shareholders. As a result, the tax payment burden for dividend distribution has shifted from the company to the shareholders.    

FAQs On TDS On Dividend Income

Before you go…

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 7.89% p.a.
• How about an affordable health insurance policy👨‍⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.