Dividend

(i) Resident shareholders:

In case of resident shareholders, Section 194 of the I-T Act provides mandate for withholding tax at the rate of 10% on dividend income

In absence of Permanent Account Number (PAN), TDS rate of 20% will apply as per the provisions of section 206AA of the I-T Act. Accordingly, shareholders who have not provided their PAN are requested to provide the same to the Corporation (in respect of shares held in physical form) or to the DP (in respect of shares held in electronic form), on immediate basis.

No tax shall be deducted at source on payment of dividend not exceeding ₹5,000 to a resident individual shareholder.

Resident individual shareholder, whose total dividend income in a financial year exceeds ₹5,000 and who wish to receive dividend without deduction of tax at source may submit a declaration in Form No. 15G/ Form No. 15H, in original to the Corporation at its Registered Office. Shareholders are requested to note that while submission of original form is mandatory.

Kindly note that the threshold of ₹5,000 or option to file Form 15G / Form 15H is not applicable to Resident HUF shareholders and the Corporation would deduct TDS in respect of such shareholders, as specified under Section 194 in full.

(ii) Non-resident shareholders (other than Foreign Portfolio Investors/ Foreign Institutional Investors)

In case of non-resident shareholders other than foreign companies, section 195 of the I-T Act provides mandate for withholding tax at the rate of 20% plus applicable surcharge and health and education cess of 4% on dividend income thereby making effective rate of TDS as under:

For non-resident shareholders other than foreign companies and firms:

In case of non-resident shareholders, being foreign companies, the I-T Act provides mandate for withholding tax at the rate of 20% plus applicable surcharge and health and education cess of 4% on dividend income making effective rate of TDS as under:

For non-resident shareholders being foreign companies:

For non-resident shareholders being a firm:

Please note that the Corporation in its sole discretion reserves the right to call for any further information and/or to apply domestic law / DTAA for TDS.

(iii) Non-resident institutional shareholders (Foreign Portfolio Investors/ Foreign Institutional Investors (FPI / FII))

In case of FPI / FII shareholders, the I-T Act provides mandate for withholding tax at the rate of 20% plus applicable surcharge and health and education cess of 4% on dividend income making effective rate of TDS as under:

For FPI/FII shareholders other than being a Company or a Firm:

For FPI/FII shareholders being a Company:

For FPI/FII shareholders being a Firm:

Treaty benefits under provisions of Double Tax Avoidance Agreements (DTAA)

In respect of non-resident shareholders (including foreign companies), the TDS rates mentioned above will be further subject to any benefits available under the Double Taxation Avoidance Agreement (DTAA) read with Multilateral Instrument (MLI) provisions, if any, between India and the country in which the non-resident is considered resident in terms of such DTAA read with MLI.

Further, Finance Act, 2021, inserted a proviso to section 196D(1) of the I-T Act to provide that in case of a payee to whom an agreement referred to in section 90(1) or section 90A(1) applies and such payee has furnished the TRC referred to in section 90(4) or section 90A(4) of the I-T Act, then the tax shall be deducted at the rate of 20% or rate or rates of income-tax provided in such agreement for such income, whichever is lower.

Accordingly, the TDS rates mentioned above will be further subject to any benefits available under the DTAA read with MLI provisions, if any, between India and the country in which such FPI/FII shareholder is considered as resident in terms of such DTAA read with MLI

This amendment is effective on all dividend payments on or after April 1, 2021.

In order to claim the benefit under DTAA, the Non-resident / FPI/FII shareholders would be required to submit the following documents each financial year on or before the record date fixed for determining the shareholders who are eligible to receive the dividend, if so approved at the ensuing AGM:

- Tax Residency Certificate (TRC) issued by the Tax/Government authority of the country in which such shareholder is a resident (valid for the relevant financial year);

- Form 10F containing therein information to be provided under Section 90(5)/90A(5) of the I-T Act, if not so covered in TRC (valid for the relevant financial year);

- Declaration from such shareholders stating the following:

1. That the shareholder did not at any time during the relevant year have a permanent establishment in India;
2. That the shareholder is the beneficial owner of the dividend;
3. That the construct and affairs of the shareholder is not arranged with the main or principal purpose of obtaining any tax benefits, directly or indirectly, under the Tax Treaty; and
4. That the arrangement of the shareholder is not covered under impermissible avoidance arrangement.
    

Please note that the Corporation in its sole and absolute discretion reserves the right to call for any further information and/or to apply domestic law / DTAA for TDS.

(iv) Introduction of Section 206AB applicable to all shareholders (resident and non-resident)

Effective July 1, 2021, Finance Act, 2021 has inserted section 206AB of the I-T Act on special provision for TDS for non-filers of income-tax return whereby tax has to be deducted at twice the rate specified in the relevant provision of the Act.

Section 206AB(1) of the I-T Act provides that where TDS is required to be deducted under Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the below rates:-

- at twice the rate specified in the relevant provision of the Act; or

- at twice the rate or rates in force; or

- at the rate of 5%.

Further, sub section (2) of section 206AB provides that where sections 206AA and 206AB are applicable i.e. the specified person has not submitted the PAN as well as not filed the return; the tax shall be deducted at the higher rate between both the said sections.

The term ‘specified person’ is defined in sub section (3) of section 206AB who satisfies the following conditions:

- A person who has not filed the income tax return for two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing of return of income under section 139(1) of the I-T Act has expired; and

- The aggregate of TDS and TCS in his case is ₹50,000 or more in each of these two previous years.

The non-resident who does not have the permanent establishment is excluded from the scope of a specified person.

Disclaimer: This Communication shall not be treated as an advice from the Corporation. Shareholders should obtain tax advice related to their tax matters from a tax professional.