TDS on dividends

The plain answer

Companies deduct TDS on dividends paid to resident shareholders: 10% with a valid PAN, 20% without one, applied once the year's dividends from that company cross the threshold, which rose from ₹5,000 to ₹10,000 from 1 April 2025. The deducted amount is a credit against your final tax, visible in Form 26AS, and the dividend itself remains taxable at your slab regardless of the TDS.

The one sentence that prevents most confusion: TDS is a prepayment, not the tax. If your slab rate is 30%, the 10% deducted was never the full amount due, and the difference settles in your return. If your slab is lower, the excess comes back as a refund. Either way, the gross dividend is the income and the TDS is only what was collected against it in advance.

Why TDS exists on dividends

Since the abolition of the Dividend Distribution Tax in 2020, dividends are taxed in the hands of the shareholder at slab rates, exactly like salary or interest. The government still wants the tax collected as early as possible, so Section 194 puts the company in the role of collector: it deducts before it pays, deposits the amount with the government, and reports the deduction against your PAN.

The mechanics follow the standard TDS design. The deduction happens at the time of credit to your account or at payment, whichever is earlier, and the company deposits the amount by the prescribed monthly due date, the 7th of the following month for non-government deductors. The company reports the deduction in its quarterly TDS return, which is how the amount lands in your Form 26AS. For you, nothing is payable at the moment of receipt: the machinery works behind the dividend credit in your bank account.

The background explains the design. Before April 2020, companies paid the Dividend Distribution Tax themselves and shareholders received dividends tax-free in their hands. The 2020 change abolished that tax and moved the liability to the shareholder at slab rates, and Section 194 arrived as the collection arm of the new arrangement. Every TDS rupee deducted today is a consequence of that single shift in where the dividend tax lives.

The Section 194 rule

The rule has three moving parts, and each is worth stating precisely.Who deducts: the company paying the dividend, through its registrar, before the money reaches your bank account.The rate: 10% for resident shareholders who have furnished a valid PAN, and 20% where no PAN is available.The trigger: only once your dividends from that company in the financial year cross ₹10,000, the threshold in force from the financial year 2025-26.

Mutual fund income distributions follow the parallel Section 194K with the same 10% rate and, since the same Budget 2025 change, the same ₹10,000 threshold. Non-residents fall under Section 195 instead, with different rates and treaty positions, so everything on this page applies to resident individuals only.

The ₹10,000 threshold

Crossing the threshold deducts TDS on the whole dividend of that payment event, not only on the amount above ₹10,000. And the threshold only switches the deduction on and off: dividends below it remain fully taxable income, reported in the return with no credit to claim.

Worked examples

Scenario one: above the threshold. One company pays you ₹60,000 of dividend in the year. The ₹10,000 threshold is crossed, so TDS of 10% is deducted: ₹6,000, and you receive ₹54,000. If your slab rate is 20%, the tax on the gross is ₹12,000. The ₹6,000 credit offsets half of it, and you pay ₹6,000 more with the return.

Scenario two: below the threshold. The same company pays ₹8,000 in the year. No TDS is deducted and you receive the full ₹8,000. At a 20% slab the return includes ₹1,600 of tax on that dividend, paid with the return rather than at source.

Scenario three: no PAN on record. The same ₹60,000 dividend with no valid PAN attached deducts at 20%: ₹12,000, and you receive ₹48,000. The extra ₹6,000 is not extra tax; it is an advance that sits in Form 26AS and comes back through the return, but only if you claim it.

Scenario four: a low slab, a refund. The same ₹60,000 dividend with the ₹6,000 deducted lands in a year where your slab is 5%. The tax on the gross is ₹3,000, the credit is ₹6,000, and the return produces a refund of ₹3,000. The deduction was a loan you made to the government, repaid through the return.

Several companies, one year

Dividends rarely come from one company alone, and the per-company threshold produces a pattern worth seeing whole. Suppose the year brings ₹12,000 from Company A, ₹6,000 from Company B and ₹6,000 from Company C. Only Company A crosses its ₹10,000 threshold, so only Company A deducts: ₹1,200 at 10%. The total gross is ₹24,000, the total TDS is ₹1,200, and the return reports the full gross with that single credit.

The lesson of the table: TDS coverage is patchy by design. Most of the ₹24,000 arrived gross, and the tax on it is entirely the return's business. The ₹1,200 credit is a partial prepayment, not a settlement of the dividend tax, and the gross total is the number the return must carry.

The dividend timeline

From boardroom to your tax return, a dividend moves through a fixed sequence:

The sequence explains the most common timing question: a dividend paid in October appears in Form 26AS only after the company's quarterly return is processed, so a credit that is missing in November is usually late, not lost. Check again before filing, and only then chase it.

Interim, final and reinvested dividends

The labels do not change the tax. Interim dividends paid during the year and the final dividend paid after the annual results all count toward the same per-company threshold in the same financial year. Two interim payments of ₹6,000 each from one company cross the ₹10,000 line together, and the TDS applies even though neither payment alone crossed it.

Reinvestment changes nothing either. Where a dividend is automatically reinvested into more shares or fund units, the dividend is still credited to you first and still faces the same TDS, because the reinvestment is a purchase made with your money after the income event. The gross amount to report is the dividend before reinvestment, not the value of the units you ended up holding.

Dividends inside the demat system

The demat account decides who receives a dividend, but it never holds the money. The record date fixes the list of holders from the demat register, the registrar computes each holder's entitlement, and the payment travels to the bank account linked in your records. The dividend credit in the broker's ledger records the gross amount, and the bank statement shows the net after TDS.

Three practical readings follow. First, the record date is what matters for eligibility: shares bought one day after it miss that payout, even if they arrive in the demat before the payment date. Second, the linked bank account is where the money lands, so a closed or changed account is the classic reason a dividend payment fails. Third, the gross in the broker's ledger and the net in the bank statement should differ by exactly the TDS, and that difference is your first reconciliation of the deduction.

REITs, InvITs and Section 194L

Dividends from listed companies are the common case, but the same collection design extends to business trusts. Income distributed by REITs and InvITs to residents carries TDS under Section 194L at 10%, deducted by the trust before payment, with the credit flowing into Form 26AS through the same route this page describes.

The reading of a REIT distribution differs from a company dividend in one respect: the distribution mixes components, interest, dividend and repayment of principal, each with its own tax character, and the TDS applies to the taxable components rather than to a single headline figure. The gross-versus-credit logic stays identical: report the taxable distribution, claim the credit, settle the difference at slab.

The advance tax note

TDS at 10% can leave a gap when your slab is higher, and a large dividend year can create an advance tax obligation. If the year's dividends are substantial and the 10% deduction falls short of the slab-rate tax on the gross, the difference joins the advance tax instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March, following the usual schedule. No advance tax is due where the total liability stays under ₹10,000.

The practical reading: a ₹5,00,000 dividend year at a 30% slab produces ₹50,000 of TDS against ₹1,50,000 of tax, and the ₹1,00,000 difference is not a July problem alone. The CA's dividend-year question is the same as the capital gains question: what came in during which quarter, and which instalment should have carried it.

Form 15G and 15H

When your total income for the financial year is below the basic exemption limit, the dividend itself will likely be tax-free, and the law lets you stop the TDS before it happens. Form 15G (for residents under 60 and for HUFs) and Form 15H (for senior citizens of 60 and above) are declarations that your income stays under the taxable limit, submitted to the company or its registrar before the dividend record date.

The form's scope is precise: it applies per company per financial year, so dividends from several companies need the form sent to each of them, and a fresh form is needed every year. The company validates the declaration and pays without deduction where it is in order.

The form is not available to everyone. Anyone whose income for the year exceeds the basic exemption limit cannot honestly file it, non-residents do not qualify, and the form is individual and HUF-specific rather than portfolio-wide. Where eligibility is borderline, the safer route is to let the TDS run and settle through the return, which costs nothing and risks nothing.

Two honest cautions. The declaration is a statement of fact: filing it when your income actually crosses the limit creates a false-declaration problem of its own. And where TDS is deducted anyway, the credit route in the return still recovers everything you were entitled to.

Claiming the credit

The TDS appears in Form 26AS and the Annual Information Statement, and the return claims it as a credit against your total tax, with any excess refunded through the normal process. The gross dividend is reported as income under the head of other sources in Schedule OS; the TDS is the prepayment on it. Both numbers matter at filing time: the bank statement and the broker ledger supply the gross, while Form 26AS supplies the deduction.

When the two do not match, the fix is upstream: the company corrects its TDS return and the revised entry flows into your 26AS. Check the credits once a quarter if dividends are a regular part of your year, and once before filing in any case. An unclaimed credit is a gift to nobody, and a mismatched one is a notice waiting.

The refund itself follows the return: once the return is processed, the excess credit is issued to the validated bank account, and the status is trackable on the portal. Keep the bank validation current before filing, because a stale account turns a processed refund into a follow-up exercise.

Mismatches and their fixes

Almost every dividend TDS problem falls into one of four patterns, and each has a fixed remedy:

• Credit missing from Form 26AS: the company has not filed or has misreported. Ask the company or its registrar to revise the TDS return; the corrected entry then flows into 26AS.
• Wrong rate applied: usually a PAN that is invalid, inoperative or missing from the records. Correct the KYC, and the next payment deducts at 10%.
• Credit sits under the wrong PAN: the demat or bank KYC carries an old PAN. Update it at the broker and the registrar, and match the historical credit through the return process.
• TDS deducted despite a valid 15G or 15H: the form missed the record date or was not on file. The refund comes through the return, since the deduction itself cannot be undone after payment.

None of these fixes needs a CA at the first step; each starts with one email to the registrar or a two-minute KYC update. The CA's role is the last mile, where the corrected credit meets the return.

Why the PAN decides the rate

The rate is binary: 10% with a valid PAN on the demat and KYC records, 20% without. The PAN is also how the deducted amount finds its way into your Form 26AS, so a wrong or missing PAN does double damage: a higher deduction and a credit that cannot be matched to you.

The upkeep is small and sits in two places: the demat account KYC held by the broker, and the records the company's registrar uses for dividend payment. When you change or correct a PAN, both should be updated, and the easiest check is the next dividend: if the deduction was 10% of the gross, the system already knows your PAN.

The limits of this page

What people usually get wrong

Questions people ask

Where to go next

Sources

• ClearTax. “TDS and TCS changes from 1st April 2025.” Accessed 16 August 2026.
• Quicko. “Section 194: TDS on dividend from equity shares.” Accessed 16 August 2026.
• TRACES, Income Tax Department. “FAQs on Form 26AS for taxpayers.” Accessed 16 August 2026.
• Income Tax Department. “Annual Information System (AIS) tutorial.” Accessed 16 August 2026.