# Section 194 – TDS on Dividend

## 1. Applicability

Payer: Principal Officer of a Domestic Company or a company in which the public are substantially interested.
Payee: Resident Shareholder.
Includes dividends on preference shares.

## 2. Threshold Limit

Aggregate dividend (including preference share dividend) paid/credited to an individual shareholder exceeds ₹10,000 in a F.Y. — applies only when dividend is paid by any mode other than cash.
No threshold in other cases (e.g., non-individual shareholder).

## 3. Rate

## 4. Time of Deduction

> Dividend TDS is payment-stage only – not at credit.

## 5. Key Notes

After abolition of DDT, dividend is taxable in shareholder's hands and Section 194 mandates TDS.
For non-resident shareholders, Section 195 applies (not 194).

## Snapshot

```

Payer : Domestic Company / Co. of public interest

Payee : Resident shareholder

Limit : > ₹10,000 (individual, non-cash); no limit otherwise

Rate : 10% (flat)

Time : Before payment

```

Worked example

### Example 1

Example 1 – Individual shareholder:

ABC Ltd. declares dividend of ₹12,000 to Mr. P (individual, resident) paid by NEFT.

### Example 2

Example 2 – Corporate shareholder:

ABC Ltd. pays ₹8,000 dividend to XYZ Pvt. Ltd. (resident corporate).

### Example 3

Example 3 – Non-resident shareholder:

ABC Ltd. pays dividend of ₹50,000 to a non-resident shareholder.

Section 194 NOT applicable; TDS u/s 195 applies (often 20% + SC + HEC, subject to DTAA).

⚠️ Common exam mistakes

Applying ₹10,000 threshold to corporate or non-individual payees – the limit is only for individuals receiving via non-cash mode.
Deducting TDS u/s 194 for non-resident shareholders – use Section 195 instead.
Forgetting that TDS u/s 194 is at payment stage – not at the time of dividend declaration or credit.
Adding surcharge/HEC on TDS to resident shareholder – flat 10% only.

Reference: 194

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