Boost to shareholders as budget doubles TDS threshold for dividend income to Rs 10,000

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman in Budget 2025 hiked the Tax Deducted at Source (TDS) threshold for dividend income from Rs 5,000 to Rs 10,000 per financial year.

The threshold for TDS in the case of dividend for an individual shareholder and income with respect of units of a mutual fund, specified company or undertaking have been doubled to Rs 10,000 in Budget 2025.

At present, companies distributing dividends are required to deduct Tax Deducted at Source (TDS) at a rate of 10% on dividends exceeding Rs 5,000 in a financial year.

The rate of TDS is 10% on dividend income, if the PAN of the recipient is available. If the recipient fails to provide a valid PAN, TDS is deducted at a higher rate of 20%.

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This section ensures that tax is collected at source for dividend income, preventing evasion and streamlining collection. Further, various TDS / TCS provisions have been rationalized by reducing the TDS rates and increasing the threshold for applying TDS.

Rationalisation of TDS rates and enhancing limits for TDS and TCS applicability would ease the compliance burden on small taxpayers. These reforms align with the Government’s promise of a simplified regime which is taxpayer friendly. The new income tax bill will now be closely watched, proposed to be tabled next week.

Akhil Chandna, Partner, Global People Solutions Leader, Grant Thornton Bharat said the increase in the tax deduction at source (TDS) and tax deduction at source (TCS) thresholds on investments and remittances and reduction in the taxation of unit-linked insurance plans also ease challenges for depositors and investors.

Rationalization of TDS and TCS Rates:

● Under Section 194A, the limit for a tax deduction on interest for senior citizens is being doubled from the present Rs 50,000 to Rs 1 lakh.

● Under Section 194I - The annual limit of Rs 2.40 lakhs for TDS on rent is being increased to Rs 6 lakhs. This will reduce the number of transactions liable to TDS, thus benefitting small taxpayers.

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● The threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from Rs 7 lakhs to Rs 10 lakh.

● Removal of TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.

● Higher TDS deduction will only apply in the case of non-PAN cases.

With inputs from Grant Thornton Bharat.