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TDS on Income from Mutual Fund Budget 2020 (Applicable from 1.04.2020)

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TDS on Income from Mutual Fund

Budget 2020

(Applicable from 1.04.2020)

1. Clarification by Government Regarding TDS on Dividend from Mutual Fund (Section 194K)

The tax department clarified that the Budget proposal of 10% TDS will be applicable only on dividend payment by Mutual Funds and not on Capital Gain arising out of redemption of units. Finance Minister had in Budget 2020-21 scrappedDividend Distribution Tax (DDT) paid by Companies and Mutual Funds on dividend paid to shareholders or unit holders.

It has been clarified that under Section 194K, a mutual fund shall be required to deduct TDS at 10% only on dividend payment & no tax shall be required to be deducted by the mutual fund on income which is in the nature of capital gains.

As per Section 194K, From 01.04.2020, TDS at 10% shall be deducted by a person responsible for paying to a resident dividend by any mode in respect of units of a Mutual Fund or units from the administrator of the specified undertaking or units from the specified company at the time of payment if the amount exceeds Rs 5,000/-.

Section 194K is applicable only on dividend paid by mutual funds. Section 194K provisions will not be applicable on dividend on equity shares paid by a domestic company.

2. Tax provision on Capital Gain on sale of Units of Mutual fund

Tax on Capital Gain will be paid by Unit holder himself/herself as per below provisions:-

Nature of Profits / Income

Units of Equity Oriented Funds Taxation

Non-Equity oriented Funds Taxation

(Debt Oriented Funds)

Minimum Holding period for Long term capital gains

1 year

3 years

Short term capital gains

15% (Without Indexation)

(Under Section – 111A)

As per the tax rate of the investor (30% for investors in the highest tax slab)

(Under Section – 111)

Long term capital gains

10% (Without Indexation if the long term gain exceeds Rs 1 Lakh)

(Under Section – 112A)

20% with indexation

(Under Section – 112)

If units of Equity Mutual Fund/ Shares purchased before 31.01.2018 thenGrandfather Technique will be used. As perGrandfather Technique cost of acquisition (COA) will be higher of:-

(a) The actual cost of acquisition of Units

(b) The lower of

(i) NAV of unit of equity Mutual fund or Highest Traded Value of Shares as on January 31, 2018, and

(ii) Total amount received at the time of selling of Equity Mutual Funds / Shares.

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