TDS on income from mutual funds – Section 194K

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In the budget the Finance Minister Nirmala Sitharaman had announced that DDT would be removed as it is creating many hardships and the change was accepted with open arms.

However it was also announced that now TDS would be deducted on such dividend and therefore many people got confused whether TDS would be deducted on dividend from equity shares or mutual funds and it was later on clarified that TDS would be deducted on income from mutual fund u/s 194K @10% if income from mutual fund exceeds Rs. 5,000 which is read as under:

“Any person responsible for paying to a resident any income in respect of––
Income in respect of units.
(a) units of a Mutual Fund specified under clause (23D) of section 10; or
(b) units from the Administrator of the specified undertaking; or
(c) units from the specified company,
shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.:

Provided that the provisions of this section shall not apply where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed five thousand rupees.”

Now reading the above section many people got confused as to whether TDS needs to be deducted even on capital gain income from mutual fund for which a press release was issued on 04.02.2020 wherein it was stated:

“It is hereby clarified that under the proposed section, a Mutual Fund shall be required to deduct TDS @ 10% only on dividend payment and no tax shall be required to be deducted by the Mutual Fund on income which is in the nature of capital gains. Necessary clarification, if required, shall be proposed in the relevant provision of the law.”

You can read the Press release HERE.

Thus after above press release it was clear that TDS would be deducted only on mutual fund income and that too on dividend from mutual fund.

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