Under SEBI regulations and the Indian Income Tax Act, how must listed companies declare corporate dividends, and what Tax Deducted at Source (TDS) applies to dividend payouts to resident shareholders?

[ A ]Dividends must be declared in absolute rupee terms per share (to avoid face value confusion), and companies must deduct 10% TDS under Section 393(1) of the Income-tax Act, 2025 (the erstwhile Section 194) if dividend paid to a resident shareholder exceeds Rs. 10,000 in a financial year.[ CORRECT ]

[ B ]Dividends must be declared exclusively as physical gold bullion coins delivered via registered courier.

[ C ]Dividends are 100% tax-free in the hands of all shareholders, and TDS deduction is strictly prohibited by law.

[ D ]Dividends can only be declared as a percentage of the company's annual employee payroll expenses.

Takeaway

Option A is correct: Dividends must be declared in absolute rupee terms per share (to avoid face value confusion), and companies must deduct 10% TDS under Section 393(1) (the erstwhile Section 194) if dividend paid to a resident shareholder exceeds Rs. 10,000 in a financial year.

Derivation

To prevent investor confusion arising from varying share face values (e.g., Rs. 10 vs Rs. 2 vs Re. 1), SEBI mandates that listed companies must declare dividends in absolute rupee terms on a per-share basis rather than as a percentage of face value. Under Section 393(1) of the Income-tax Act, 2025 (the erstwhile Section 194 of the Income-tax Act, 1961), domestic companies must deduct TDS at the rate of 10% on dividend payments made to resident individual shareholders if the aggregate dividend exceeds Rs. 10,000 during the financial year. This tests dividend regulation and taxation. The common error is assuming dividends are still tax-free.

Why the others fail

B — Dividends must be declared exclusively as physical gold bullion coins delivered via registered courier.

Corporate dividends represent cash distributions credited electronically to bank accounts, not physical bullion deliveries.

C — Dividends are 100% tax-free in the hands of all shareholders, and TDS deduction is strictly prohibited by law.

Following the abolition of Dividend Distribution Tax in 2020, dividends are fully taxable in shareholder hands with 10% TDS above Rs. 10,000.

D — Dividends can only be declared as a percentage of the company's annual employee payroll expenses.

Dividends are distributions of profit after tax to equity shareholders, having no relationship to employee payroll expenses.