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Section 194 of Income-Tax Act, 1961

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HomeBrud.gifIndian LawBrud.gifActsBrud.gifIncome-Tax Act, 1961Brud.gifSection 194 of Income-Tax Act, 1961

Section 194 of Income-Tax Act, 1961 deals with Dividends.

From the Act

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 in cash or before issuing any cheque or warrant 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 rates in force :

[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 an account payee cheque; 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 [two thousand five hundred] 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 :]

[Provided also that no such deduction shall be made in respect of any dividends referred to in section 115-O.]

Recent Cases / Related Cases / Case Laws

  • ‘Shareholder’ refers to holder of shares - The expression ‘shar­eholder’ does not refer to a registered shareholder but refers only to a holder of shares - CIT v. Juliet M. Fateh [1979] 116 ITR 368 (Bom.).
  • Profits earned after commencement of winding-up are not covered - Profits earned after the commencement of the winding-up of a company are not dividends and cannot be the subject-matter of any tax under section 194 - Kanhaiya Lal Bhargava v. Official Liqui­dator [1965] 56 ITR 393 (All.).
  • Provision does not apply to company in UK - Sections 194 and 198 do not have any application to a company in the United Kingdom which declares a distribution of dividend or pays tax thereon in the United Kingdom - CIT v. Ambalal Kilachand [1994] 210 ITR 844 (Bom.).

Other related Sections from the Act

  • Section 2: Definitions. Includes meanings of various terms used in the Indian Income Tax Act, 1961
  • Section 194A: Interest other than "Interest on securities"
  • Section 194B: Winnings from lottery or crossword puzzle
  • Section 194BB:Winnings from horse race
  • Section 194C: Payments to contractors
  • Section 194D: Insurance commission
  • Section 194E: Payments to non-resident sportsmen or sports associations
  • Section 194EE: Payments in respect of deposits under National Savings Scheme, etc.
  • Section 194F: Payments on account of repurchase of units by Mutual Fund or Unit Trust of India

Sections of the Indian Income Tax Act, 1961

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