Introduction
Section 194JB of the Income Tax Act, 1961 was introduced by the Finance Act, 2019 and it came into effect from 1st September 2019. This section deals with the tax deduction at source (TDS) on the payment of certain dividends by the mutual funds. In this blog, we will discuss section 194JB of the Income Tax Act, 1961 in detail.
Applicability
Section 194JB is applicable to all resident individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), and other resident taxpayers. The section applies to the payment of dividends by mutual funds to resident individuals, HUFs, AOPs, BOIs, and other resident taxpayers.
Rate of TDS
The rate of TDS under section 194JB is 10%. The TDS is applicable if the aggregate amount of dividend paid or likely to be paid during the financial year is more than Rs. 5,000.
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Non-Applicability of TDS
The TDS under section 194JB is not applicable in the following cases:
- When the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000.
- When the dividend is paid to any person being an individual or HUF, and the amount of dividend or, the aggregate of the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000.
- When the dividend is paid to any person being a resident other than an individual or HUF, and the amount of dividend or, the aggregate of the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000.
Time of TDS Deduction
The TDS under section 194JB is to be deducted at the time of credit of the dividend to the account of the payee or at the time of payment of the dividend, whichever is earlier.
Consequences of Non-Compliance
If the deductor fails to deduct TDS or after deducting, fails to pay the TDS to the credit of the Central Government, he/she shall be liable to pay interest and penalty as per the provisions of the Income Tax Act, 1961.
Background
The Finance Act, 2019 introduced section 194JB to the Income Tax Act, 1961 to bring about the taxation of certain dividends paid by mutual funds. This provision was brought in as an amendment to section 194 of the Income Tax Act, which deals with the TDS on payment of dividend. Prior to this amendment, only companies were required to deduct TDS on dividend payments. The introduction of section 194JB widened the scope of TDS on dividend payments to include mutual funds as well.
Applicability to Non-Resident Taxpayers
Section 194JB is applicable only to resident taxpayers. Non-resident taxpayers are not covered under this section. However, non-resident taxpayers are subject to TDS on dividends under section 195 of the Income Tax Act.
Exceptions to TDS Deduction
The TDS under section 194JB is not applicable in certain cases. For instance, if the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000, TDS is not required to be deducted. Additionally, if the dividend is paid to an individual or HUF, and the amount of dividend or the aggregate of the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000, TDS is not applicable. Similarly, if the dividend is paid to a resident other than an individual or HUF, and the amount of dividend or the aggregate of the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000, TDS is not applicable.
Time Limit for TDS Payment
The TDS under section 194JB is required to be paid to the credit of the Central Government within 14 days from the end of the month in which the deduction was made. The TDS payment can be made through online or offline modes.
Consequences of Non-Compliance
If the deductor fails to deduct TDS or fails to pay the TDS to the credit of the Central Government, he/she shall be liable to pay interest and penalty as per the provisions of the Income Tax Act, 1961. The interest rate is 1% per month or part thereof, and the penalty can range from Rs. 10,000 to Rs. 1,00,000 depending on the severity of the non-compliance.
Conclusion
Section 194JB of the Income Tax Act, 1961 is an important provision that deals with the TDS on the payment of dividends by mutual funds. It is important for taxpayers to understand the provisions of this section to avoid any penalties and interest for non-compliance.
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Frequently Asked Questions (FAQs)
What is Section 194JB of the Income Tax Act, 1961?
Section 194JB of the Income Tax Act, 1961 deals with the TDS on payment of certain dividends by mutual funds.
Who is liable to deduct TDS under Section 194JB?
The resident individual, HUF, AOP, BOI, or other resident taxpayers who are making the payment of certain dividends by mutual funds are liable to deduct TDS under Section 194JB.
What is the rate of TDS under Section 194JB?
The rate of TDS under Section 194JB is 10%.
What is the threshold limit for TDS deduction under Section 194JB?
The threshold limit for TDS deduction under Section 194JB is Rs. 5,000.
Is TDS applicable if the dividend paid or likely to be paid during the financial year is less than Rs. 5,000?
No, TDS is not applicable if the dividend paid or likely to be paid during the financial year is less than Rs. 5,000.
Is TDS applicable to non-resident taxpayers under Section 194JB?
No, Section 194JB is applicable only to resident taxpayers. Non-resident taxpayers are subject to TDS on dividends under Section 195 of the Income Tax Act.
When should the TDS be deducted under Section 194JB?
The TDS should be deducted at the time of credit of the dividend to the account of the payee or at the time of payment of the dividend, whichever is earlier.
What is the time limit for payment of TDS under Section 194JB?
The TDS under Section 194JB is required to be paid to the credit of the Central Government within 14 days from the end of the month in which the deduction was made.
What are the consequences of non-compliance with Section 194JB?
If the deductor fails to deduct TDS or fails to pay the TDS to the credit of the Central Government, he/she shall be liable to pay interest and penalty as per the provisions of the Income Tax Act, 1961.
Is TDS exemption available under Section 194JB for certain categories of taxpayers?
Yes, TDS exemption is available for certain categories of taxpayers under Section 194JB. For instance, if the dividend is paid to an individual or HUF and the amount of dividend or aggregate of the dividend paid or likely to be paid during the financial year does not exceed Rs. 5,000, TDS is not applicable.
