Introduction

Dividends are returns distributed by companies to their shareholders out of profits. In India, dividend income is taxable in the hands of the recipient as per the Finance Act, 2020. With this change in taxation, the Permanent Account Number (PAN) has become an essential component in tracking, reporting, and declaring dividend income. PAN allows the Income Tax Department to monitor dividend payouts, ensure correct TDS application, and verify income declarations by investors. It supports transparency, accuracy, and compliance in dividend taxation for both companies and individual shareholders.

1. PAN for Dividend Income Tracking

PAN serves as a unique financial identity for each shareholder. When companies or mutual funds pay dividends, they report these payouts to the Income Tax Department against the shareholder’s PAN. This creates a clear audit trail of income received and ensures that it is accounted for in the recipient’s income tax return.

2. Mandatory PAN for TDS on Dividends

As per Section 194 of the Income Tax Act, companies are required to deduct TDS at 10% if dividend payments to a resident shareholder exceed ₹5,000 in a financial year. If the shareholder fails to provide a valid PAN, TDS is deducted at a higher rate of 20%, as per Section 206AA.

3. PAN in Dividend Declaration Forms

Shareholders must furnish their PAN to companies and registrars through updated KYC forms or dividend declaration forms. This ensures that dividend records are correctly maintained and reported for tax purposes, avoiding unnecessary tax deduction at higher rates.

4. PAN-Based Reporting in Form 26AS and AIS

All dividend payments made to PAN holders are reflected in Form 26AS and the Annual Information Statement (AIS). These forms provide taxpayers with a consolidated view of dividend income received, TDS deducted, and help ensure correct reporting in the income tax return.

5. Use of PAN for Refund Claims

If excess TDS has been deducted on dividend income, taxpayers can claim refunds while filing their ITR. The PAN ensures the refund is processed accurately and credited to the correct bank account linked to the PAN profile.

6. PAN for Non-Resident Shareholders

Non-resident investors must also provide PAN to claim TDS benefits under the applicable Double Taxation Avoidance Agreement (DTAA). Without PAN, the benefit of lower tax rates under DTAA may be denied, and a flat rate of 20% or more could be applied.

7. Validation of PAN in Demat and Bank Accounts

For investors holding shares in demat form, PAN must be updated with depository participants. This ensures that dividend income is routed and reported correctly, especially for tax credit and refund purposes. The PAN must also match the bank details where dividends are credited.

8. Use of PAN in Form 15G/15H Submission

Investors whose total income is below the taxable limit can submit Form 15G or 15H to avoid TDS on dividend income. Submission of PAN is mandatory in these forms. If PAN is not provided, the declaration becomes invalid and TDS will be applied.

9. PAN for Mutual Fund Dividend Declarations

In mutual fund investments, dividend income is reported against the investor’s PAN. Asset management companies deduct TDS and file TDS returns accordingly. Investors must ensure their PAN is correctly updated in mutual fund KYC records.

10. Cross-Verification During ITR Filing

During ITR filing, taxpayers must declare dividend income under “Income from Other Sources.” Using PAN, the Income Tax Department verifies the declared dividend with third-party reports from companies and mutual funds. Any mismatch may result in scrutiny or a notice.

Conclusion

PAN is a critical link in the process of dividend tax declarations, ensuring that every rupee received is traceable and reported to the Income Tax Department. Whether for TDS deduction, refund claims, or ITR verification, PAN provides a unified platform for transparency and compliance. Shareholders must ensure that their PAN is correctly registered and updated with all financial institutions, registrars, and depositories. Accurate use of PAN in dividend declarations not only facilitates smoother tax filing but also prevents excess deductions and future disputes with tax authorities.

Hashtags

#DividendTax #PAN #TaxDeclarations #IncomeTax #TaxCompliance #FinancialLiteracy #TaxPlanning #TaxFiling #InvestSmart #TaxTips #FinanceEducation #TaxSeason #WealthManagement #TaxAdvice #TaxStrategy #Investing101 #PersonalFinance #TaxLaw #FinancialPlanning #TaxReturn