TDS on Dividend Income — Section 194 for Shareholders and Mutual Fund Investors

Since FY 2020-21, dividends paid by Indian companies to shareholders became fully taxable in the hands of the recipient (the earlier Dividend Distribution Tax was abolished). This change also introduced TDS on dividend payments. Section 194 governs TDS on dividend from domestic companies; Section 194K covers mutual fund dividends. Here is the complete guide.

Section 194 — TDS on Dividend from Domestic Companies

• Who deducts: Domestic companies declaring dividends
• When: At the time of payment of dividend
• TDS rate: 10%
• Threshold: TDS applies only if the dividend amount to a single shareholder exceeds ₹5,000 in a financial year
• If PAN not provided: 20% TDS

Section 194K — TDS on Mutual Fund Dividend

• Who deducts: Mutual fund companies distributing dividend/income distribution under IDCW (Income Distribution cum Capital Withdrawal) plans
• TDS rate: 10%
• Threshold: TDS if the amount payable to a single investor exceeds ₹5,000 in a financial year

Taxability of Dividend in Hands of Recipient

• Dividend from domestic companies: Taxable as "Income from Other Sources" at slab rates under the old regime; or at applicable slab rates under the new regime
• Dividend from mutual funds (IDCW option): Taxable as "Income from Other Sources"
• No deduction for expenses to earn dividend — except interest expenditure (Section 57 — limited to 20% of dividend income)

Dividend from Foreign Companies

Dividend from foreign companies is also taxable in India as Income from Other Sources. TDS is not deducted by the foreign company, but the Indian recipient must self-declare and pay tax (including advance tax if applicable). Section 115A provides a flat 20% tax rate on gross dividend received from foreign companies (without deductions).

Avoiding TDS — Form 15G/15H

Shareholders/investors who expect their total income to be below the taxable limit can submit Form 15G (below 60 years) or Form 15H (senior citizens) to the company to avoid TDS deduction — if their total income including dividend is below the basic exemption limit.

Conclusion

Dividend taxation reform in 2020 shifted the tax burden entirely to shareholders — making proper ITR declaration and TDS management essential for investors. SPOTON provides comprehensive ITR filing for investors with dividend income from stocks and mutual funds across Kerala. Contact us for expert income tax services.