SLBM: How does TDS on dividend work?

Need Help ℹ️
1

I’m renting out stocks using SLBM.

I understand that during share rental period, if the stock goes ex-dividend, the borrower gets the dividend, and the broker then transfers the dividend to me (the lender).

But suppose the borrower gets over 10k dividend, the company will deduct TDS (this must be quite common as one use of SLMB is cash carry arb, and lot size is big).

How is this TDS handled? It is the borrower’s name that appears in form 26AS. How will the TDS be transferred to me (the lender)?

2

Hi @KumarS, TDS does not get transferred here, and the dividend credited to the lender is on a post-TDS basis.

3

Thanks for the reply, Tanvi.

To be clear - are you saying the borrower will get the TDS benefit and the lender loses 10% of dividend in all cases where TDS is applicable?

4

Yes as of now. @KumarS

5

Okay Tanvi, thanks for confirmation.

This may seem rare but I don’t think it is: if borrowers are typically cash n carry arbers - as FO lot sizes are big, they will accumulate a big qty, so 10% TDS on borrower is likely.

Also long term holdings have not just 0.5-1% dividend yield but much higher (I get more than 15% every year on buy price on my old ONGC etc holdings) whereas SLBM yield on most stocks is very low, so 10% of dividend is actually more important.

Might I suggest:

  1. Pls make this clear to people using Dhan’s excellent SLBM product for passive income (that they may lose 10% of dividend). They will ask where the 10% dividend went, and may wrongly blame you after it happens!
  2. I’m surprised that such a basic point is not handled. Is this a ‘known’ NSCCL issue? Can it be raised or something be done to fix this?
6

Hi @KumarS We do plan to introduce clearer disclaimers for borrowing as well. Since SLBM is a relatively niche product despite being around for a while, there are still several open aspects that are under review by regulators.

This is an industry-wide mechanism governed by clearing corporations like NSCCL, and not something specific to Dhan.

That said, your point on user awareness is very valid. We agree that this can lead to confusion or perceived discrepancies if not communicated clearly upfront, and we’re actively working on improving visibility and disclosures around this for users.