Amended and updated notes on section 194 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to Dividends.
Chapter XVII (Sections 190 to 234G) of the Income Tax Act 1961 deals with the provisions related to collection and recovery of tax. Section 194 of IT Act 1961 provides for Dividends.
Recently, we have discussed in detail section 193 (Interest on securities) of IT Act 1961. Today, we learn the provisions of section 194 of Income-tax Act 1961. The amended provision of section 194 is effective for financial year 2020-21 relevant to the assessment year 2021-22.
In this article, you will learn detail of the provisions of section 194 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India.
Section-194: Dividends
The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment 33[by any mode] in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax at the rate of ten per cent;
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 36[five thousand] rupees:
Provided further that the provisions of this section shall not apply to such income credited or paid to—
- (a) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or in which it has full beneficial interest;
- (b) the General Insurance Corporation of India (hereafter in this proviso referred to as the Corporation) or to any of the four companies (hereafter in this proviso referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest;
- (c) any other insurer in respect of any shares owned by it or in which it has full beneficial interest.