TDS on Dividend Under the Income-tax Act
A domestic company paying or distributing dividend to a resident shareholder may be required to deduct tax at source. From 1 April 2026, the principal resident-dividend TDS rule is Section 393(1), Table Serial No. 7 of the Income-tax Act, 2025. Legacy Section 194 of the Income-tax Act, 1961 continues to govern dividend events falling under the earlier Act.
What is dividend TDS?
Dividend TDS is tax withheld by the company before distributing or paying dividend to a shareholder where the statutory conditions apply. The withholding obligation is separate from the shareholder's ultimate income-tax liability, which is determined under the provisions applicable to that shareholder.
Who deducts tax under current Section 393?
For the resident-dividend category in Section 393(1), Table Serial No. 7, the payer is a domestic company. The provision covers dividend declared for a resident shareholder and expressly includes dividend on preference shares.
Current TDS rate on dividend
The statutory rate specified in Section 393(1), Table Serial No. 7 is 10 percent. Other provisions can affect the actual withholding in particular cases, including rules concerning PAN, a lower or nil deduction certificate, an eligible declaration for no deduction, or a statutory exemption from deduction.
Rs. 10,000 exception for an individual shareholder
Although the dividend row in Section 393(1) carries a nil general threshold, Section 393(4) contains a specific non-deduction rule for an individual shareholder where the dividend is paid by a mode other than cash and the amount or aggregate of dividend distributed or paid, or likely to be distributed or paid, during the tax year does not exceed Rs. 10,000.
When is dividend TDS deducted?
Section 393 specifically requires tax on the dividend in Table Serial No. 7 to be deducted before making the distribution or payment of dividend. Companies should therefore determine shareholder status and any valid non-deduction or lower-deduction documentation before releasing the dividend.
Cases where dividend TDS may not be required
Section 393(4) contains specified non-deduction cases. These include, subject to the statutory conditions, dividend income paid or credited to the Life Insurance Corporation of India in respect of qualifying shares, the General Insurance Corporation of India and specified insurance companies, another insurer having the required ownership or beneficial interest, and certain payments involving a business trust and its special purpose vehicle. The provision also permits other persons to be notified by the Central Government.
Declaration for no deduction
Section 393(6) permits eligible persons to furnish the prescribed declaration where the statutory conditions for no deduction are satisfied. Under the Income-tax Rules, 2026, the declaration mechanism uses Form 121. Eligibility must be checked carefully; merely furnishing a declaration does not override the statutory conditions.
Transition from Section 194 to Section 393
| Relevant event | Applicable law | Provision |
|---|---|---|
| Dividend event governed on or before 31 March 2026 | Income-tax Act, 1961 | Section 194 and other applicable provisions |
| Dividend event governed on or after 1 April 2026 | Income-tax Act, 2025 | Section 393(1), Table Serial No. 7 |
The Income Tax Department's transition guidance states that TDS obligations are governed by the Act applicable when the relevant credit or payment event occurs. For transactions from 1 April 2026, deductors should quote the applicable Section 393 table item instead of the old TDS section number.
Legacy Section 194 of the Income-tax Act, 1961
The uploaded version records a TDS rate of 10 percent and an individual-shareholder non-deduction limit of Rs. 5,000, subject to the payment-mode condition then contained in the provision. These figures describe the historical text of the source page and should not be substituted for the current Section 393 rules.
Dividends covered by legacy Section 194
The legacy provision covered ordinary dividend, including dividend on preference shares, and also referred to distributions or payments falling within the specified limbs of the definition of dividend in Section 2(22) of the 1961 Act.
Legacy insurer exceptions
The source provision excluded qualifying dividend income credited or paid to the Life Insurance Corporation of India, the General Insurance Corporation of India and specified companies formed under the General Insurance Business (Nationalisation) Act, 1972, and other insurers, where the relevant shares were owned by them or they had full beneficial interest as required by the provision.
Practical dividend TDS checklist
Confirm residential status: Section 393(1), Table Serial No. 7 is the resident-payee rule. Non-resident shareholders are governed by the applicable non-resident withholding provisions and treaty considerations, where relevant.
Check shareholder category: identify whether the shareholder is an individual, insurer, business trust, company, trust or another category because statutory exceptions may differ.
Apply the current rate: the resident-dividend rate in Section 393(1), Table Serial No. 7 is 10 percent, subject to other applicable provisions.
Check the individual exception: for an individual shareholder, examine the Rs. 10,000 aggregate limit and non-cash payment condition under Section 393(4).
Review declarations and certificates: verify any Form 121 declaration or lower/nil withholding certificate before applying a reduced or nil deduction.
Use the correct section reference: for a current transaction, report the applicable Section 393 table item rather than legacy Section 194.
Related Income Tax provisions
Interest other than interest on securities: legacy Section 194A
Interest on securities and accumulated balance: legacy Sections 192A and 193
Rent TDS: legacy Section 194-I
Payments to contractors: legacy Section 194C
For a live dividend payment, verify the shareholder's residential status, current Finance Act, PAN status, declarations, certificates and any notification applicable to the shareholder category.