CBDT clarifies TDS on Mutual Fund dividend (not gains): Budget 2020 proposals

CBDT has clarified that Budget 2020 has proposed 10% TDS on Mutual Fund dividends, above Rs. 5000/ year, in lieu of removal of DDT, under new IT Section 194K. However, any capital gains arising out of appreciation in the value of units/ shares of Mutual Funds/ Companies shall not be subjected to such TDS.

Clarification on applicability of TDS on Mutual Funds (Section 194K) CBDT Press Release dt. 4th February 2020

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

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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