TDS on Dividend below 5K.

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This discussion clarifies the rules around Tax Deducted at Source (TDS) on dividend payouts below £5,000. Generally, no TDS is required for dividends under this threshold, especially if paid electronically to individuals. However, a case arose where tax authorities demanded TDS at 20% plus interest for shareholders without a PAN, even for amounts below £5,000. The core question is whether Section 206AA (requiring higher TDS if PAN is not provided) overrides Section 194 (threshold for dividend TDS). While there are precedents for Double Taxation Avoidance Agreements overriding Section 206AA, its effect on other TDS sections like 194 is less clear, suggesting an appeal might be necessary.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
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28 November 2021 A company is not required to deduct TDS on Dividend payout below Rs. 5k. However what happens if some small shareholders hold shares in physical form and do not have PAN NO. Is company liable to deduct tax on dividend payout even if below Rs. 5k. If so at what rate?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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28 November 2021 No deduction.
Its below the threshold limit.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
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28 November 2021 Thank You! However the Income Tax authorities have raised demand for non deduction of tax @20% plus penal interest! What is the legal position?

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
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28 November 2021 Thank You! However the Income Tax authorities have raised demand for non deduction of tax @20% plus penal interest! What is the legal position?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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28 November 2021 As per second proviso of sec. 194 of IT act...
" Provided that no such deduction shall be made in the case of a shareholder, being an individual, if—

(a) the dividend is paid by the company by [any mode other than cash]; and
(b) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed [five thousand] rupees: "......

Whereas as per As per section 206AA of the I.T. Act, 1961, if PAN is not provided by the deductee then rate as per relevant provision of the Act or the rate in force or at the rate of 20%, whichever is higher, is to be deducted.

Question arises whether sec. 206AA has overriding effect over sec. 194 of the act.
There are case laws for overriding effect of DTAA over 206AA, but not found for other TDS sections. You need to file appeal with the similar argument.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
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28 November 2021 O.k. Thank You so much!

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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28 November 2021 Most Welcome.

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