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CBDT Clarification on Proposal in the Finance Bill 2020 related to TDS on Mutual Fund


CBDT vide a press release dated 04.02.2020 issued a clarification on a proposal in the Finance Bill, 2020 related to recently introduced TDS provisions on income from Mutual Funds under section 194K.

Finance Bill, 2020 has introduced a new section 194-K to provide that any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or units from the administrator of the specified undertaking or 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 10 percent. It may also be provided for a threshold limit of Rs 5,000/- so that income below this amount does not suffer tax deduction.

Since then it was opined that since section 194K has used the term 'any income' it includes dividend income as well as capital gain income arising on redemption of units of a Mutual Fund, though it was not the intention.

To remove the ambiguity, the CBDT has clarified vide a press release that section 194K shall apply only in the case of payment of dividend income to unitholders and not on the capital gain income.

Read the full text of the clarificatory note.

Ministry of Finance

CBDT issues clarification on the applicability of TDS provisions on Mutual Fund dividend

Dated: 04.02.2020

The Finance Bill, 2020 proposed to remove Dividend Distribution Tax (DDT) at the level of Company/ Mutual Fund and proposed to tax the same in the hands of share/unit holder. It was also proposed to levy TDS at the rate of 10% on the dividend/ income paid by the Company/Mutual Fund to its share/unit holder if the amount of such dividend/ income exceeds five thousand rupees in a Financial Year.

Queries have been received to the effect that whether under the proposed section 194K, the Mutual Fund would be required to deduct TDS also on the capital gains arising on redemption of units. 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.

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