CBDT's clarification on TDS provisions on mutual fund dividend



Quick Summary
The Central Board of Direct Taxes (CBDT) has issued a clarification regarding Tax Deducted at Source (TDS) on mutual fund dividends. Following the Finance Bill 2020, which shifted the dividend tax burden to investors, a 10% TDS was proposed on dividends exceeding ₹5,000 per financial year. The CBDT has now confirmed that mutual funds are only required to deduct TDS on dividend payments and not on capital gains arising from the redemption of units.

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.

FAQ :

The Finance Bill 2020 proposed to remove Dividend Distribution Tax (DDT) at the company/mutual fund level and instead tax it in the hands of the share/unit holder.

A TDS at the rate of 10% is proposed on dividend/income paid by a company/mutual fund if the amount exceeds five thousand rupees in a Financial Year.

No, the CBDT has clarified that mutual funds are not required to deduct TDS on income that is in the nature of capital gains arising on redemption of units.

Mutual funds are required to deduct TDS at 10% only on dividend payments made to their unit holders.




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Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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