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Taxation of Dividend Distribution

Taxation of Dividend Distribution in India

 

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The Income Tax Act, 1961 (Act), as amended by the Finance Act 2020, mandates that dividends paid or distributed by Indian Companies on or after April 1, 2020 would be taxable in the hands of shareholders. As per the new provisions, Indian company is required to deduct the applicable tax at source under Sections 194 & 195 of the Income Tax Act, 1961 (Act) in case of residents & non-residents, respectively. 

Dividend payment to resident shareholders is subject to a withholding tax of 7.5 % (applicable for FY 2020-21) provided the shareholder has updated his PAN with the depository or the Company as the case may be. Otherwise, the TDS rate would be 20%. However, there is no withholding tax, if the dividend paid to a resident individual shareholder does not exceed Rs. 5,000 in the fiscal year.

Dividend payment to non-resident shareholder is liable for withholding tax at a rate of 20% (plus applicable surcharge and cess). A lower rate for withholding may apply if the benefit of tax treaty is available to the shareholders.

Please refer to the Investor FAQs section of this website for questions on tax deduction at source on dividend distributed to shareholders. The company has compiled this FAQ exercising due care and diligence, for the convenience of the shareholders. However, shareholders are encouraged to seek appropriate professional advice as pertinent to their specific circumstances and act accordingly.

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