TaxTMI 
TaxTMI 
Evolution of Tax Deduction at Source on Dividends : Clause 393(1)[Table: S.No. 7] and clause at 393(4)[Table: S.No.10] of the Income Tax Bill, 2025 Vs. Section 194 of Income Tax Act, 1961
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..... Specifically, Clause 393(1)[Table: S.No. 7] prescribes the TDS regime for dividends paid to residents, while clause at 393(4)[Table: S.No.10] enlists scenarios where no TDS is required on such payments. These must be analyzed in juxtaposition with the existing Section 194 of the Income-tax Act 1961, which currently governs TDS on dividends. This commentary provides a comprehensive, issue-wise analysis of the relevant clauses, their objectives, detailed provisions, practical implications, and a comparative study with Section 194, culminating in a critical synthesis and suggestions for further refinement. Objective and Purpose The legislative intent behind TDS provisions on dividends is twofold: (a) to ensure efficient tax collection at t....
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.... irrespective of the quantum of dividend. * Threshold: No minimum threshold; TDS applies to every payment unless specifically exempted under sub-section (4). * Timing: Deduction to be made before making any distribution or payment of dividend. Interpretation and Issues: - The provision is broad, covering all forms of dividends (including preference shares), and applies to every resident recipient unless excluded under Clause 393(4). - The absence of a threshold in the main clause is significant, but is subject to carve-outs in the exemption table. - The 10% rate aligns with current practice u/s 194. II. Clause at 393(4)[Table: S.No.10] of the Income Tax Bill, 2025 Textual Provision: "Dividend referred to in section 393(1)....
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....entral Government allows for administrative flexibility. Practical Implications For Companies (Payers) - Obligation to Deduct: Companies must deduct TDS at 10% on all dividend payments to residents unless an exemption applies. - Threshold Monitoring: For individuals, companies must track aggregate dividend payments to ensure the Rs. 10,000 threshold is not breached. - Mode of Payment: Payment in cash to individuals, regardless of amount, attracts TDS; non-cash payments below threshold are exempt. - Institutional Investors: No TDS is required for payments to LIC, GIC, other insurers, business trusts, or notified persons. - Compliance: Timely deduction, deposit, and reporting of TDS are mandatory to avoid interest, penalties, and ....
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....ly reducing interpretive disputes. 3. Exemptions - The list of exempted institutional investors is essentially identical, with both including LIC, GIC, other insurers, business trusts, and notified persons. - The Bill provides greater specificity and flexibility by allowing the Central Government to notify further exemptions. - The Bill also aligns the exemption for small shareholders with modern payment methods, shifting from "account payee cheque" to "any mode other than cash." 4. Administrative Mechanisms - The Bill's tabular format and explicit cross-referencing between deduction and exemption tables facilitate easier compliance and reduce errors. - Section 194 is more reliant on careful reading of provisos and cross-ref....
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....any cash payment, regardless of amount, is a strong anti-abuse measure but may create compliance burdens in rare cases where cash payment is necessary. 3. Treatment of Joint Shareholders - The provisions do not explicitly address aggregation of dividends for joint shareholders, potentially leading to interpretive challenges. 4. Notification Power - The Central Government's power to notify additional exempt persons is essential for flexibility but could lead to lack of transparency or ad hocism unless exercised judiciously. 5. Interplay with Other Provisions - The Bill's integration of TDS on dividends with other TDS provisions (e.g., for business trusts, mutual funds) may require careful coordination to avoid double deduction ....