Section 194

As per the Finance Act, 2020 provisions of the TDS Section 194 have been amended. This provides for TDS on dividend income declared, distributed, and paid by a company within the country, which was previously exempted from income tax under Section 10(34). This was followed by the ending of the DDT (Dividend Distribution Tax) on the sum of dividends declared by a company in the country. Let us understand Section 194 for proper compliance.

What is TDS Paid on Dividend as per Section 194?

We all love “money”. Many of us, our friends, family, and others buy shares of large companies hoping to get a good return in terms of price appreciation and dividends. The dividend is only the equity profit (and interest) of the company’s shareholders, and Section 194 requires a tax deduction on the amount of such dividend to be paid to the shareholders.

What are the Needs to Deduct TDS as per Section 194?

A company’s director, which is in the procedure of declaring a dividend (equity or interest or both) in India, seeks to deduct tax on a dividend included in sub-section (a) or (b) if he is (c) or (d) or (e) of subsection 22 of Section 2. But from 1.4.2003, it will be the same this contribution of TDS and distribution in terms of subsection 2(22)(e), which included distribution under Section 2(22)(a), (b), (c), or (d), excluded from shareholders.

What is TDS Rate under Section 194?

The TDS rate in this case is 10%. In this, TDS will be deducted at the time of payment (by cash, cheque, credit, etc.) or draft, whichever is earlier.

What are the Exceptions of TDS Section 194?

As a shareholder, no tax deduction will be made under Section 194 (who is an individual), when:

• Dividend payable through the payer of account and such sum (accretion only in the financial year) does not exceed Rs. 2,500.
• Splitting cover as per Section 115-O.
• The dividend will be paid to LIC, GIC or its subsidiaries, or any other insurer according to the shares held by them or in which they have full interest.
• If you have filed I5G/15H and your income is below the tax limit.

Deemed Dividend Sections 2(22)(a), (b), (c), (d) of Income Tax Act

Section 2(22) deals with the declaration of dividends as per the Income Tax Act.

What is Section 2(22)(a) – Asset Distribution Deemed as a Dividend?

A distribution includes any distribution by a company of retained earnings, whether or not such distribution is made by the company to all of its shareholders or any part of the company’s assets.

What is Section 2(22)(b) – Debenture Distribution Deemed as a Dividend?

Dividend involves:

• Any distribution to the holders by the company of debentures, or certificates of deposit of any kind, with or without interest.
• Any distribution to preferred stockholders of shares in the form of a bonus.

What is Section 2(22)(c) – Asset Distribution on Destruction Deemed as a Dividend?

In this, dividends involve any distribution made to the shareholders of a company on its destruction, to the extent that such distribution connects to the accumulated profits of the company instantly after the liquidation, whether incorporated or not.

What is Section 2(22)(d) – Distribution of Reduction of Share Capital Deemed as a Dividend?

Dividends involve any distribution to its shareholders by a company on the reduction of its capital to the range that the company holds accumulated profits, whether incorporated or not.

What is Section 2(22)(e) – Loans & Advances by Closely Held Company Deemed as a Dividend?

• A shareholder will be the beneficial owner of shares and who holds at least 10% of the voting power and will be deemed as the dividend in the hands of the shareholder.
• To any concern or firm, in which such a shareholder is a member or a partner and in which he has a considerable interest, is deemed as the dividend in the hand of the concern or firm.
• Or to any person, on behalf of or for the individual advantage of such a shareholder, is deemed as a dividend in the hands of the shareholders.