All you need to know about TDS on dividend

4 mins read
by Angel One

We all are pretty much aware of what a dividend is. To define, it is a share of a company’s profit to its shareholders. Now, the question is, what happens when a company declares a dividend? Once the company has announced the dividend, the eligibility is determined based on the number of shares you hold in the Demat account on the ex-date/record date* declared by the company.

Please know that to be eligible for dividends, the stock purchase should be made 1-day before the ex-date/record date to ensure delivery of stocks into the Demat account by the record date. Let’s understand this with the help of an example – ABC company has declared the record date/ex-date as Tuesday. So, to be eligible to avail the dividend, you must purchase the shares on or before Monday so that they are available in the account by Tuesday EOD.

How much dividend will be credited to your account?

If the shareholder is eligible for the dividend payments on the ex-date/record date, then the dividend amount net of TDS is credited to the bank account mapped in the Demat account with Angel One. You should know that the TDS amount is deducted from the declared dividend amount at the rate of 10%, 20%, or such other rate as prescribed by the Income Tax Act 1961. Further, no TDS will be deducted from the dividend for each shareholder when the gross value paid is less than ₹5,000 in a financial year.

What happens if I hold Collateral Stocks?

Even if you have created the Margin Pledge for shares in favour of Angel One, the ownership lies with you. Thus, the shares pledged against margin are entitled to receive dividends, and the same will be credited to your linked bank account by the RTA of the company.

If we receive your dividend in lieu of the movements of shares from your Demat account, then we will credit eligible dividends to your trading account, subject to the dividend amount being credited to us. However, in most cases, we receive a dividend net of TDS. So, even if your dividend amount is less than ₹5000, we will receive it net of TDS; thus, we will credit the same amount to your account, i.e., net of TDS. To ensure that you receive your TDS amount, we issue a letter to respective companies to transfer TDS credit to the PAN of the respective shareholders. This is because the dividend can only be transferred to the PAN of the respective shareholders by the company that has announced and paid the dividend.

Who is responsible for deducting tax u/s 194?

The principal officer of an Indian company that has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India.

Other people involved in the process


The company distributing dividends to the investors of equity shares deducts TDS on such dividends and is thus known as Deductor. As per regulatory guidelines, the deductor must deposit the TDS and file the TDS Return on TRACES.


Deductee is a shareholder residing in India who will receive the dividend income from equity shares after deducting TDS under Section 194 and mutual funds under Section 194K. However, NRI investors/shareholders will receive dividend income after TDS deduction under Section 195.

When will the TDS be deducted under Section 194?

TDS will be deducted at the time of credit of income to the payee account or at the time of payment, whichever is earlier.

How to avail of the TDS return?

The TDS paid on dividends is part of the tax paid for the financial year, which can be verified through Form 26AS, available on the income tax portal. After depositing TDS with the Income Tax Department, the deductor should file Form 26Q, which contains details of the dividend payment on TRACES. After filing the report, the deductor should provide Form 16A to the deductee, which they can use to avail of the TDS return.

*W.e.f 27-Jan-23, ex-date and the record date are the same in view of the shift in the settlement cycle from T+2 to T+1 day.