TDS on Dividend - Pledged Holdings

With the new pledging rules coming into effect from 1st September, I understand that corporate actions would be much simpler, since the securities will no longer be transferred to the broker’s collateral account. But I have a specific query as to dividends paid till then (i.e., from 1-Apr-2020 till the date of implementation of the new pledging framework).

From FY 20-21, tax is to be deducted at source on dividends distributed by companies and AMCs, if the dividend payable to a person exceeds the threshold limit (Rs. 5,000).

With regard to the recent change in the tax treatment for dividends, how does it affect people who had pledged certain shares for the purpose of margin ?

For example, for Rs.100 distributed as dividends (before TDS), TDS shall be Rs.10 (7.5 for FY 20-21) and the net amount distributed - Rs.90 (92.5 for FY 20-21). In this case, will the broker credit Rs.90 or Rs.100 to the original holder (pledgor), since the credit of TDS shall be to the broker (in whose name the shares appear as at the record date) ?

I know that it is a bit late, given that the new framework will be implemented by all brokers within the next week. But the reason I am asking right now is because I am contemplating to purchase a relatively good number of BRITANNIA shares and also pledge them.

Also, it will be helpful if anyone can tell whether they had received the entire dividend or just the post-deduction amount - in respect of their pledged holdings.


@siva can you please direct this question to appropriate person for an answer…
thanks in advance

@mohitmehra Can you.

@Pratist @mohitmehra
I just checked my ledger for all Dividends I have received from 1st April 2020 till 19th August 2020 for pledged securities, against the declared dividends of the respective companies. I have received only ~92.5% of Dividends in each instance. For each instance my dividend payout was in few hundreds (not even 1000’s, let alone the threshold limit of Rs 5000). So if I would not have pledged the securities, I would have received 100% of the dividends.

However, it makes sense that the companies would have deducted TDS on dividends paid to Zerodha for the pledged securities, as the received dividends might have been greater than Rs5000 (combined across all the pledged securities in the pool).

The question now is,

  • how would we claim this TDS amount? Will zerodha pay it out at a later date?
  • Also why/how the 7.5% figure? shouldn’t it be 10% deduction?
1 Like

Thanks for the information…

Regarding the second point as to why the rates of TDS had been reduced to 7.5%, you can refer to this Press Release issued by CBDT on 13-May-2020.


@Quicko Can you.

@siva, I think you misunderstood, and I believe @Quicko might not be of any help yet.
this is not a personal tax question but a question on Zerodha’s business decision on how it would handle the TDS on dividends, the paperwork/infrastructure and the compliance overhead that would come along with it.

the TDS these companies (that declared dividends) deducted, they deposited it with the IT dept. (Form 26AS) against the PAN of Zerodha assuming the dividends are an income to Zerodha. So at the end of FY 20-21, Zerodha mostly will claim it back as the income (dividends received by Zerodha) wasn’t an income to Zerodha after all (as they further distributed it back to users who had pledged their shares)

The users who pledged these shares can only claim this TDS if the TDS appears on their Form-26AS / PAN.
This can now happen only after Zerodha deposits the TDS amount with IT Dept. (Form 26AS) against each of these individual’s PAN in this FY.

adding @nithin to this concern as well, as I believe this might be something new and of significant interest.


Zerodha doesn’t claim for this TDS. The dividends distributed after TDS to the clients from Zerodha, for shares sold on the ex-date or pledged holdings are updated against the respective PAN of the clients. You can go through this support article where we’ve mentioned this.


please go through this link/post

hope this helps!

Zerodha shall credit the tds in your corresponding PAN every quarter. you can check your 26AS statement. sT


@bshubhranshu @r95990 @siva @Nakul

Thanks very much for the time spent and also for helping me out…

Frnd TDS rate for individual indian is @7.5 %.

Govt. provide 25% releif in TDS rate due to COVID-19 upto 31 March-2021. so, effective rate of TDS on Dividend is 7.5%.