Now dividends on equity funds will be taxed at 10%. In Budget 2018, the Union Finance Minister Arun Jaitley has proposed to impose a dividend distribution tax of 10% on equity funds. So far, equity funds are exempted from paying dividend distribution tax.
The move will create level playing field between growth option and dividend options, claims the Finance Minister.
In his Budget speech, Jaitley said, “I also propose to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%. This will provide level playing field across growth oriented funds and dividend distributing funds,” Jaitley said.
Experts say that the move will affect flows from HNIs and large investors. Sundeep Sikka, CEO, Reliance Mutual Fund said, “Many HNIs and large corporates invest in arbitrage and balanced funds for dividends. The move will discourage them. However, retail investors will continue to invest in growth option. In fact, the move will push demand for the growth option among HNIs as well,” said Sundeep.
Ashutosh Bishnoi, CEO, Mahindra Mutual Fund feels that this will create a level playing field between equity and debt funds. “Currently, there is dividend distribution tax on debt funds. This will result in uniform tax treatment between debt and equity funds. I don’t see a challenge in this as only a small fraction of investors invest in equity for dividends,” said Ashutosh.
Also, the government has proposed to impose long term capital gains tax of 10% on equity funds. However, this tax is applicable only if the capital gains exceed Rs.1 lakh. Also, there will be no indexation benefit given to investors on equity funds. Click Here to Read.
