Introduction
If you’re a shareholder receiving dividends in India, knowing TDS under Section 194 in India is important to handle your taxes right. This section of the Income Tax Act requires companies to deduct tax at source on dividend payments to residents. With changes from Budget 2025 effective April 1, 2025, for FY 2025-26, the rules are simpler for small amounts. In this guide, updated as of July 2025, we’ll explain TDS under Section 194 in India, including rates, limits, exemptions, and tips. Whether you’re an investor or company, understanding TDS under Section 194 in India avoids surprises.
What Does Section 194 Mean?
Section 194 requires Indian companies to deduct TDS on dividends paid to resident shareholders before giving the money. This started after the Dividend Distribution Tax (DDT) ended in 2020, making dividends taxable for receivers. TDS is cut at the time of payment or crediting the account, whichever comes first.
The goal of TDS under Section 194 in India is to collect tax early and stop evasion. It covers dividends like profit distributions or bonus shares under Section 2(22). For non-residents, use Section 195 instead.
TDS Rate for Section 194
The main rate for TDS under Section 194 in India is 10% on dividends over the limit. If no PAN is given, it rises to 20%. These rates don’t include extra charges like surcharge or cess.
For example, on a Rs. 12,000 dividend with PAN, TDS is Rs. 1,200 (10%). Without PAN, it’s Rs. 2,400 (20%). Rates stay the same for 2025-26, but always confirm.
Threshold Limit Under Section 194
TDS applies only if yearly dividends to a shareholder exceed Rs. 10,000. This limit was raised from Rs. 5,000 in Budget 2025 to help small investors.
- Checked per shareholder per year.
- Below Rs. 10,000, no TDS, even by cheque.
- Over the limit, deduct on the full amount.
Example: Rs. 9,500 yearly – no TDS; Rs. 10,500 – 10% on all Rs. 10,500.
Exemptions and Special Cases
Some cases skip TDS under Section 194 in India:
- Dividends under Rs. 10,000 yearly.
- Payments to LIC, GIC, or subsidiaries.
- Non-cash dividends or to business trusts.
- If income low, submit Form 15G (general) or 15H (seniors 60+).
- Dividends under old Section 115-O (rare now).
For non-residents, Section 195 has up to 20% plus cess, but treaties can lower it. If unsure, TaxQue can check exemptions.
How to Comply with Section 194
Companies deduct TDS at credit or payment, deposit by 7th next month (30 April for March) via Challan 281, file Form 26Q quarterly, and give Form 16A within 15 days.
Missing this means 1% monthly interest for no deduction, 1.5% for delays, and fines up to TDS amount. TaxQue offers tools for tracking and filing.
Tips for Managing TDS in 2025
- Companies: Monitor per shareholder, check PAN for 10% rate, use software.
- Shareholders: Verify Form 26AS for credits, claim refunds in ITR, submit 15G/15H if eligible.
- 2025 Update: Higher Rs. 10,000 limit helps small holders; watch tax site.
- For complex cases like multiple sources, get advice from TaxQue.
Frequently Asked Questions (FAQs)
What is TDS under Section 194 in India?
TDS under Section 194 in India is tax deducted by companies on dividends to residents over Rs. 10,000 yearly, at 10% rate.
What is the threshold for Section 194 in 2025?
The threshold for TDS under Section 194 in India is Rs. 10,000 per year, raised from Rs. 5,000 to ease small payments.
What if no PAN for TDS under Section 194?
Rate jumps to 20%. Share PAN to use 10% for TDS under Section 194 in India.
Are there exemptions in Section 194?
Yes, under Rs. 10,000, to LIC/GIC, or via Form 15G/15H. TaxQue helps check for TDS under Section 194 in India.
How to deposit TDS under Section 194?
Deposit by 7th next month, file Form 26Q. Late leads to penalties; use TaxQue for timely TDS under Section 194 in India.
Conclusion
TDS under Section 194 in India ensures fair tax on dividends, with 2025 changes making it simpler for small investors. By knowing rates, limits, and rules, you can comply without issues and claim what’s due. Whether tracking payments or filing, stay updated for smooth handling. TaxQue provides easy support for deductions and more. Follow the tips, deposit on time, and keep your taxes in order this year.
