Challenges for TDS on Dividend

 

From Financial year 2020-21, companies required to deduct TDS under section 194 & 195 while making  dividend payout to their shareholders.  In this article we had highlighted few challenges in respect of TDS deduction on dividend.

01.   A shareholder can have multiple demat account.  Hence it is necessary to check if single PAN is having multiple demat account where he holding shares of your company on the record date.  

 

02.   Shareholders have the option to opt for lower TDS rate by submitting Form 15G/15H or tax residency certificate. Company should provide  this facility to the shareholders and also remember to file online quarterly return for Form 15G/15H.

 

03.   The company may be paying dividend more than one time in a financial year.  While making first payment  there was no TDS  for a shareholder as the payment was less than Rs. 5000/-. However while making another dividend payment, the aggregate dividend exceeds Rs. 5000/- and become subject to TDS.

 

04.   There are number of shareholders who kept their shares in physical form and not in demat form. Thus, mandatory data like PAN, residency status may not be available with the registrar. Company should provide facility to this shareholder to provide necessary information.

 

05.   The dividend amount should be transferred to separate escrow bank account  within 5 days from the date of announcement of dividend.  If possible check with bank, whether they allow TDS payment from the escrow account and if not then transfer only the net dividend amount to escrow bank account. Thus, companies require to compute correct  for all shareholders in a very short span of time.

 

06.     The biggest challenge is in respect of dividend payment to non resident. If the shareholder suo-moto not updates his residential status before his demat company, then there is no way company can know the correct residential status of his shareholders.

 

07.   Further, based on Tax residency certificate, PAN availability , country of payment, etc, the TDS rate under section 195 going to determine and same may be vary for number of shareholders.

 

08.   For all the foreign payment companies has to arrange for separate form 15CA/15CB for each dividend payment.

 

09.   At last, the details of TDS deduction require to be consolidated in the quarterly Form 26Q and Form 27Q of the company.