Dividends [Section 194] under Deduction of Tax at Source :

(1) Dividends declared, distributed or paid by a domestic company are exempt in the hands of the shareholder under section 10(34). This includes deemed dividend under sections 2(22)(a) to (d). This is because such dividend attracts dividend distribution tax @ 15% in the hands of the company.

(2) The TDS provisions under this section are attracted only in respect of deemed dividend referred to in section 2(22)(e), if such dividend exceeds ` 2,500 in a year.

(3) The rate of deduction of tax in respect of such dividend is 10%.

(4) Individual shareholders, who are residents in India are entitled to receive their dividends from any domestic company without deduction of tax at source by the company in cases where –

(i) the amount of dividend income received from the company does not exceed Rs 2500 during the year; and

(ii) the dividend is paid by an account payee cheque.

The TDS provisions will not apply to dividend receivable by LIC, GIC, its subsi diaries or any other insurer provided the shares are owned by them, or they have full beneficial interest in such shares.