[Sections 194, 194LBA, 194K, 195, 196A, 1 96C, 196D]
(a) Section 194:
It provides for deduction of tax at source on distribution or payment of dividend by an Indian Company. The rate for tax shall be 10% and liability to deduct TDS shall arise if the amount of dividend distributed or paid to shareholder exceeds Rs. 5,000;
(b) Section 194LBA:
It provides for deduction of tax at source by business trust on dividend income paid to unit holder. The rate of tax shall be 10% if dividend is paid to resident unit holder. In case of non-resident unit holders, the rate of tax shall be 5% for interest income and 10% for dividend income;
(c) Section 194K:
A new section has been proposed to be inserted in the Act to provide, deduction of tax at source at the rate of 10%, if any person responsible, for paying to a resident, any income exceeding Rs. 5,000:
- in respect of units of a Mutual Fund specified under section 10(23D);
- units from the administrator of the specified undertaking; or
- units from the specified company.
(d) Section 195:
Section 195 of the Act provides for deduction of tax at source from payments made to non-residents. The second proviso to section 195 exempts deduction of tax at source in respect of dividends referred to in section 115-0.
It has been proposed to omit the second proviso to section 195. Thus, dividend income earned by a non-resident shall be governed by the provisions of section 195 and would be subject to withholding tax.
(e) Section 196A:
Currently, no deduction of tax at source is required under section 196A in respect income payable to a non-resident unit holders in respect of units of a mutual fund. The Finance Bill has proposed to shift the incidence of tax on the recipient. Hence, the said TDS exemption under section 196A is proposed to be withdrawn;
(f) Section 196C:
It is proposed to remove exclusion provided to dividend under section 115-0. Thus, any dividends in respect of Global Depository Receipts shall be subject to TDS at the rate of bob; and
(g) Section 196D:
It is proposed to remove exclusion provided to dividend under section 115-0. Thus, any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD shall be subject to TDS at the rate of 20%.
Impact on Cash Inflow on Dividend Income or Income on Units
|Financial Year 2020-21 (AY : 2021-22)||Financial Year 2020-21 (AY : 2021-22)||Financial Year 2020-21 (AY : 2021-22)|
|Net Benefit /|
Note :Assuming that the portion of distributable profit which was utilized for payment of DDT (till the financial year 2019-20) shall be distributed among shareholders. Thus, more dividend income shall be paid to the shareholders. If other conditions remain the same, the same shareholder would now get a dividend of Rs.1,20,556 viz-a-viz Rs. 1,00,000.