Part – 6 TDS on Dividend
Members may note that Pursuant to the provisions of the Income Tax Act, 1961 (‘the Act’), dividends paid or distributed by the Company shall be taxable in the hands of the shareholders. Therefore, we are required to deduct tax at source (TDS) at the time of making payment of the said Interim Dividend.
The rate of TDS would vary depending on the residential status of each shareholders(s), and the supporting documents submitted by them and accepted by the Company in this regard. Accordingly, the Interim Dividend will be paid after deducting tax at source (TDS) in the following manner.
A. For Resident Shareholders
Tax shall be deducted at source under Section 194 of the Act, as under:
|Shareholders having valid Permanent Account Number (PAN)
10% or as notified by the Government of India
|Shareholders not having PAN / invalid PAN
|20% or as notified by the Government of India
|Shareholders who have not filed their income tax returns for the previous two financial years for which due date u/s 139(1) has expired and aggregate of TDS in their case is Rs. 50,000/- or more in each of these two previous years.
However, no tax shall be deducted on the dividend payable to resident individual shareholders, if the total dividend to be received by them including this interim dividend payment during financial year 2021-22 does not exceed Rs. 5,000/-, and also in cases where shareholders provide Form 15G (applicable for individuals below 60 years of age earning dividend income)/Form 15H (applicable for individuals above 60 years of age earning dividend income) subject to conditions specified in the Act.
Resident shareholders may also submit any other document as prescribed under the Act to claim a lower/Nil withholding of tax. PAN is mandatory for shareholders providing Form 15G/15H or any other document as mentioned above.
B. For Non-resident Shareholders
Tax is required to be withheld in accordance with the provisions of Section 195 (*) and other applicable sections of the Act, at the rates in force. The withholding tax shall be at the rate of 20% (plus applicable surcharge and cess) or as notified by the Government of India on the amount of dividend payable.
However, as per Section 90 of the Act, non-resident shareholders have the option to be governed by the provisions of the Double Tax Avoidance Agreement (DTAA) read with Multilateral Instrument (“MLI”) between India and the country of tax residence of the shareholder, if such provisions are more beneficial to them. For this purpose, i.e., to avail the benefits under the DTAA read with MLI, non-resident shareholders are required to provide the following documents:
– Self-attested copy of Tax Residency Certificate (TRC) obtained from the tax authorities of the country of which the shareholder is resident
– Self-declaration in Form 10F Click here to download Form 10F
– Self-attested copy of the Permanent Account Number (PAN) allotted by the Indian Income Tax authorities.
– Self-declaration for the financial year 2021-22 [ Click here to download the self-declaration format], certifying the following:
- Shareholder is and will continue to remain a tax resident of the country of its residence during the Financial Year 2021-22;
- Shareholder is eligible to claim the beneficial DTAA rate for the purposes of tax withholding on dividend declared by the Company;
- Shareholder has no reason to believe that its claim for the benefits of the DTAA is impaired in any manner;
- Shareholder is the ultimate beneficial owner of its shareholding in the Company and dividend receivable from the Company; and
- Shareholder does not have a taxable presence or a permanent establishment in India during the financial year 2021-22.
In case of Foreign Institutional Investors/Foreign Portfolio Investors, tax will be deducted under Section 196D (*) of the Act @ 20% (plus applicable surcharge and cess) or rate provided in the relevant DTAA read with MLI, whichever is more beneficial subject to the submission of the above documents.
Please note that application of beneficial DTAA rate at the time of tax deduction/withholding on dividend amounts shall depend upon the completeness and satisfactory review by the Company, of the documents submitted by non-resident shareholder.
(The Finance Act, 2021 has inter-alia inserted Section 206AB of the Act with effect from 1st July, 2021, which introduces special provisions for TDS in respect of taxpayers who have not filed their income-tax returns (referred to as specified persons). U/s 206AB of the Act, tax is to be deducted at higher of the following rates in case of payments to the specified persons:
a. at twice the rate specified in the relevant provision of the Act; or
b. at twice the rate or rates in force; or
c. at the rate of 5%.
In cases where Sections 206AA and 206AB are applicable i.e. the shareholder has not submitted the PAN as well as not filed the return; tax will be deducted at higher of the two rates prescribed in these sections.
“Specified person” as defined u/s 206AB (3) is someone who has:
(a) not filed income tax return for two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing of return of income under section 139(1) of the Act has expired; and
(b) The aggregate of TDS and TCS in whose case is Rs. 50,000 or more in each of these two previous years.
Non-resident shareholders who do not have permanent establishment in India are excluded from the scope of a “specified person”.
Please note that the information regarding whether a shareholder is a specified person or not will be provided by the downloaded through the functionality of the Income Tax Department. Accordingly, it is advised that non-residents who have not filed their income tax returns in the past years, provide a declaration stating that they do not have a permanent establishment in India.)
For withholding of tax, residential status of the shareholder will be considered as per the data available with the Company/the RTA/the DPs. In case there is any change in the residential status, the shareholders are requested to update their current status with the Company/the RTA/the DPs on or before February 22, 2022.
The aforementioned documents are required to be uploaded on the shareholder portal at the https://ris.kfintech.com/form15/ on or before February 22, 2022. Kindly note that no communication would be accepted from shareholders after February 22, 2022 in this regard.
Above communication on TDS only sets out the provisions of law in a summarized manner and does not purport to be a complete analysis or listing of all potential tax consequences. Shareholders should consult their own tax advisors for the tax provisions as relevant and applicable to them.
It may further be noted that in case the tax on said dividend is deducted at a higher rate in absence of receipt of the aforementioned details/documents from you, you may file return of income and claim refund of tax, as appropriate.
Kindly note that no claim shall lie against the Company for the tax deducted on dividend. The Company shall arrange to email a soft copy of the TDS Certificate at the shareholders registered email address post payment of the dividend. Shareholders will also be able to see the credit of TDS in Form 26As, which can be downloaded from their e-filing account at http://incometaxindiaefiling.gov.in
SHAREHOLDERS HAVING MULTIPLE ACCOUNTS UNDER DIFFERENT STATUS / CATEGORY
Shareholders holding shares under multiple accounts under different status / category and single PAN, may note that, higher of the tax as applicable to the status in which shares held under a PAN will be considered on their entire holding in different accounts