TDS on dividend received from domestic companies for equity shares – Section 194:

With Budget, 2020 our Hon’ble Finance Minister demolished Dividend Distribution tax and now dividend would be taxable in the hands of recipient and company is not required to pay any tax on same.

Along with making changes to section 10(34), 115-O, 115BBDA, CBDT also made changes to section 194 of the Income tax act which was dealing with TDS on dividend but it was not covering dividend on which DDT has been already paid i.e. Dividend covered under 115-O.

However now after the amendment by Budget 2020 all kinds of dividend would be liable for TDS including dividend on equity shares which have been declared, distributed and paid after 01.04.2020.

The amendment to section 194 is as follows:

“(a) for the words “in cash or before issuing any cheque or warrant”, the words “by any mode” shall be substituted;

(b) for the words “at the rates in force”, the words “at the rate of ten per cent.” shall be substituted;

(c) in the first proviso,–– (i) in clause (a), for the words “an account payee cheque”, the words “any mode other than cash” shall be substituted; (ii) in clause (b), for the words “two thousand five hundred rupees”, the words “five thousand rupees” shall be substituted;

(d) the third proviso shall be omitted.”

Thus, from the above amendment it is clear that now TDS shall be deducted on each dividend if the amount of dividend is above Rs. 5,000 to a person and TDS shall be deducted at 10% which is same as TDS on income from mutual fund u/s 194K.

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