Section 194 TDS on Dividends FY 2025-26: Rate, Threshold, Exemptions & Compliance Guide

Section 194 TDS on dividends FY 2025-26 raises more questions than the two headline figures answer. What happens if a shareholder holds shares jointly, has no PAN, is a senior citizen with low income, lives abroad, or holds mutual fund units rather than shares? How does the company report the deduction, and how does the investor get credit for it?

This guide takes these questions one at a time. It is written for finance teams that must deduct and deposit the tax, and for investors who want to understand the amount that reaches their bank account. We also explain the penalties for getting it wrong and show a compliance routine that works for companies of any size.

Section 194 TDS on Dividends FY 2025-26: What Is It in Simple Terms?

Section 194 is the rule that obliges a domestic company to deduct income tax from any dividend it pays to a resident shareholder and to deposit that tax with the government. The shareholder gets the dividend net of tax and later claims credit for the amount deducted.

Think of it as tax collected at the source rather than at the end of the year. The dividend is income of the shareholder, taxable at their normal slab rate, and the company simply collects a first instalment on the government's behalf. The rule covers dividend on both equity and preference shares and applies to every kind of domestic company, listed or unlisted, large or small. In a family-owned private company, a director who pays a dividend to relatives must follow it just as a listed company does.

The shareholder's income tax return then shows the full dividend as income and the tax deducted as a credit. If the shareholder's final tax is lower, the difference is refunded, and if it is higher, the shareholder pays the balance. For companies that want help running this process, our TDS return filing team handles deduction, deposit and returns.

How Much TDS Is Deducted on Dividends in FY 2025-26?

The TDS rate on dividends paid to resident shareholders in FY 2025-26 is 10%, and no tax is deducted where the total dividend paid to a shareholder in the financial year is ₹10,000 or less, provided it is paid by account payee cheque or an electronic mode.

A simple example shows how the limit works. Suppose a company pays ₹5 per share as dividend. A shareholder with 2,000 shares receives exactly ₹10,000, which is within the limit, so there is no TDS. A shareholder with 2,001 shares receives ₹10,005, which crosses the limit, and the company must deduct 10% on the whole ₹10,005, which is about ₹1,001, not merely on the ₹5 above the limit.

The limit is tested per shareholder, per company and per financial year, and it takes in every dividend paid in that year, interim as well as final. The previous limit of ₹5,000 was doubled from 1 April 2025.

Rates are for dividends paid in FY 2025-26. Confirm the position on the date of payment before you deduct.

If a shareholder has not given a PAN, the rate rises to 20% under section 206AA. Earlier, shareholders who had not filed returns in the past two years faced higher rates under sections 206AB and 206CCA, but those provisions were withdrawn from 1 April 2025, so the company need not run that check for FY 2025-26 payments. Companies should still keep PAN data complete, since the cost of a missing PAN falls on the shareholder and the mismatch lands on the company's return.

Who Is Not Subject to TDS on Dividends?

TDS on dividends is not deducted when the dividend is within the ₹10,000 limit, when the recipient is one of the insurers named in the section, or when a valid Form 15G, Form 15H or lower deduction certificate is in force. The dividend remains taxable in the recipient's hands in every case.

The section carves out Life Insurance Corporation of India, General Insurance Corporation of India and its subsidiaries, and other insurers for shares they own or in which they hold the full beneficial interest.

For individuals, section 197A provides a self-declaration route. A resident individual or HUF whose total income, including the dividend, will not be taxable can submit Form 15G, and a resident who is 60 or older can submit Form 15H, and both need a PAN. The company or its registrar must hold the declaration before it pays the dividend, must keep it for the prescribed period, and must report it in its return. A shareholder who expects the actual tax to be below 10%, for example because of carried-forward losses, can apply to the assessing officer under section 197 for a certificate that sets a lower or nil rate.

How Does TDS Work for NRIs, Mutual Fund Units and Buy-Backs?

For NRIs, mutual fund units and buy-backs, different provisions apply, and applying plain Section 194 to them is a frequent source of error. Each follows its own section, rate and return form.

How Should a Company Handle Dividend TDS Compliance Step by Step?

A company should treat dividend TDS as a fixed routine that starts when the dividend is declared and ends when certificates reach shareholders. The seven steps below describe a workable sequence for Section 194 TDS on dividends FY 2025-26.

The consequences of getting the routine wrong are specific. Interest runs at 1% per month for late deduction and 1.5% per month for late deposit, a fee of ₹200 a day applies under section 234E for a late return, up to the amount of the tax, and a penalty of ₹10,000 to ₹1 lakh can follow under section 271H.

Companies that need a controlled year-end review can add support from CFO services and an annual income tax audit.

How Can Shareholders Verify and Claim Their TDS Credit?

Shareholders can verify credit by checking Form 26AS and the Annual Information Statement for the company's deduction, and claim it by reporting the full dividend as income and the TDS as tax already paid in the return.

Start by listing every dividend you received in FY 2025-26 from bank statements, broker statements and the registrar's communications. Then compare it with the dividend and TDS entries in Form 26AS and the AIS. Our guide on how to read and reconcile your AIS before filing ITR shows how. If a company has deducted tax but not reported it, the credit will not show, and you should request the company or registrar to correct its return.

Report the dividend under income from other sources, deduct only interest expense that was incurred to earn it, up to 20% of the dividend, and claim the TDS credit as it appears in the statements. A resident whose income is below the taxable limit and who had tax deducted despite being eligible for Form 15G gets a refund on filing. To choose the right return form, see the new ITR forms for AY 2026-27 guide.

Investors with large portfolios and both dividend and trading income should see our income tax return true copy and business tax filing pages for support.

Why Has the Dividend TDS Regime Been Reshaped Over the Years?

The dividend TDS regime was reshaped because India moved between taxing the company that distributes profit and taxing the shareholder who receives it, and Section 194 is the working part of the system now in place.

Section 194 TDS on Dividends FY 2025-26: Frequently Asked Questions

Related Guides and Services

• New ITR Forms for AY 2026–27 (FY 2025–26): Complete Guide to Changes, Slabs & ITR-B: pick the right return form before you claim dividend TDS credit.
• How to Read & Reconcile Your AIS Before Filing ITR for AY 2026–27: match dividend and TDS entries before you file.
• Which ITR Form Should You File for AY 2026–27? Complete Selector Guide: an eight-step method to match your income to the right form.
• TDS return filing: deduction, deposit, Form 26Q and Form 27Q returns, and Form 16A.
• Accounting and tax compliance: year-round compliance for companies and NRI shareholders.
• Bookkeeping: clean records that tie challans and returns together.
• CFO services: controlled year-end reviews for finance teams.
• Income tax audit: annual audit support for companies.
• Income tax return true copy: certified copies of your filed return.
• Business tax filing: returns for investors with dividend and trading income.