TogglIcon
ToolsLearnBytesTax Q&AGet Started

TDS on Dividend paid in FY 2020-21

Union Finance Minister Nirmala Sitharaman announced in Union Budget that she is abolishing Dividend Distribution Tax, commonly known as DDT on companies. She also introduced a new TDS Section 194K (TDS on Dividend Income from Equity Mutual Funds) in addition to amending the existing Section 194 (TDS on Dividend Income from Equity Shares).

As a result, confusion ensued amongst Investors, Brokerages, Companies, and AMCs. Various questions were unanswered such as who needs to deduct TDS, when to deduct TDS, rate of TDS, how to claim credit of TDS, and more.

Quicko as a tax platform helps traders and investors with their tax compliances. As we are entering into the tax filing season, it is important to have clarity on the concept of TDS on Dividend.

Abolishment of DDT

DDT i.e. Dividend Distribution Tax was a tax paid by a company on distributing dividends to its shareholders. As the tax was paid by the Company, such dividend income was exempt in the hands of the shareholder.

Since the DDT is abolished from FY 2020-21, the Dividend Income is now a taxable income and hence TDS would also be applicable.

TDS Sections on Dividend Income

TDS is liable to be deducted by the Company or AMC paying a dividend on or after 1st April 2020 as per the applicable section.

Amendment of Section 194

A provision was added to the existing Section 194. If the dividend on equity shares exceeds INR 5,000, the Company should deduct TDS at 10% under Section 194.

Introduction of Section 194K

If the dividend on equity mutual funds exceeds INR 5,000, the AMC should deduct TDS at 10% under Section 194K.

If the PAN is invalid or not available, TDS would be deducted at 20%. In the case of a Non-Resident shareholder, TDS would be deducted at 20% (plus surcharge and cess). The shareholder can file Form 15G or Form 15H for deduction of TDS at a lower rate or Nil rate.

TDS on Dividend

Is TDS on dividend applicable on Capital Gains from Mutual Funds? – CBDT Clarification

Section 194K had been introduced to deduct TDS on “Income from Mutual Funds”. There was confusion about whether the word ‘Income’ would include only dividends; or also include Capital Gains on the sale of Mutual Funds. On 4th Feb 2020, CBDT issued a clarification on this issue.

CBDT Clarification – 10 percentage of TDS should be deducted on Dividend Income only and not on Income from Capital Gains on the sale of Mutual Funds.

TDS Rates reduced due to COVID-19

Under the Direct Tax Measures of Atmanirbhar Bharat, the TDS Rates were slashed by 25% applicable from 13th May 2020 up to 31st March 2021. TDS Rate under Section 194 and Section 194K were also reduced for the remaining part of FY 2020-21.

Section Nature of Payment Old Rate Reduced Rate
Sec 194 Dividend on Equity Shares 10% 7.5%
Sec 194K Dividend on Equity Mutual Funds 10% 7.5%

Companies and AMCs have started sending emails to the shareholders and unitholders for distributing dividends after deducting TDS at the rate of 7.5%. It also mentions the submission of Form 15G or 15H for deduction of TDS at a lower rate. Here is the subject of a sample email:

Final Dividend for FY 2019-20 – Communication on Tax Deduction at Source (TDS) / withholding tax on Dividend

How to claim TDS Credit in ITR?

The Company would provide Form 16A i.e. TDS Certificate to the shareholders after filing the TDS Return. The shareholder can claim the credit of TDS deducted in the Income Tax Return. He/she can download Form 26AS from the account on the income tax website to view the details of the TDS Credit.

The investor should report dividend income under the head Income from Other Sources. If the TDS Credit is less than the tax liability, he/she must pay the differential amount of tax. If the TDS Credit is more than the tax liability, he/she should claim a refund of the excess TDS. For the dividend paid in FY 2020-21, TDS Credit can be claimed while filing Income Tax Return in July 2021.


Import Your Trades
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Import Your Trades

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

We are Quicko, a team of accountants, developers and designers on a mission to simplify taxes for all. For any queries or questions comment below.

Tweet Us--Like Us--Join Us

19 Likes

Share
facebook twitter

Arvind says: (Awaiting Approval)

2021-07-05 10:57:23

My wife (who is homemaker) has shares in her name and has income from the dividend. Her 26AS shows TDS (tax deducted). Since I gave her the money to purchase shares, I am clubbing this dividend income in my income tax return. How do I claim/show the TDS being shown in her 26AS in my ITR?

Reply

Venkataramani says: (Awaiting Approval)

2021-06-11 09:20:49

Hi!, I bought shares in Majesco with cum dividend benefit but I sold them just before the actual dividend got credited to my account. Subsequent to that, Zerodha credited my account on 31 December 2020 with an amount of Rs. 81085.50, the amount Zerodha got from Majesco after deducting 7.5% as TDS. When I queried about the credit of TDS amount I was told by Zerodha Support, that the TDS will be credited in my 26AS. I find this is yet to be done. Can you please assist on this. Thanks for your support, Venkataramani

Reply

Venkataramani says: (Awaiting Approval)

2021-06-11 09:20:49

Hi!, I bought shares in Majesco with cum dividend benefit but I sold them just before the actual dividend got credited to my account. Subsequent to that, Zerodha credited my account on 31 December 2020 with an amount of Rs. 81085.50, the amount Zerodha got from Majesco after deducting 7.5% as TDS. When I queried about the credit of TDS amount I was told by Zerodha Support, that the TDS will be credited in my 26AS. I find this is yet to be done. Can you please assist on this. Thanks for your support, Venkataramani

Reply

anonyms says: (Awaiting Approval)

2021-05-22 04:47:21

An excellent article. Most people still do not understand the tds on mf dividends. Their dividends are very less amount and tds is below thousand Rs. Govt.should reconsider the tds on mf or the tax limit should be raised.

Reply

Homepage says: (Awaiting Approval)

2021-04-29 02:27:18

... [Trackback] [...] Read More: blog.quicko.com/tds-on-dividend-paid-in-fy-2020-21 [...]

Reply

R P GUPTA says: (Awaiting Approval)

2021-04-07 22:10:13

SIR I HAVE PAN BUT DUE TO ANY REASON PAN IS NOT UPDATED OR RECORDED IN FOLIO AND RTA IS DEDUCTING TDS@ 20 PERCENT .WHAT SHOULD I DO.WITH REGARDS

Reply

aamir says:

2020-07-09 11:38:18

How do I know if my PAN is on record

Reply

BH V L NARASIMHA RAO says:

2020-10-25 01:55:00

It appears that Zerdha is not updating the PAN, Residential Status and other details with the Companies or RTAs. I already experienced that 20% TDS is deducted from my Dividend. I will be thankful to Zerodha if they do it now in respect of Asian Paints for which the Record Date is 30-10-2020. If the Company deducts TDS @ 20% under the guise that PAN is not available, I think that the deduction will not reflect in Form 26 AS.

Reply

Post a comment

Scroll to Top Quicko