In a major blow to mutual fund investors, the government has proposed to levy 10% tax deducted at source (TDS) from mutual funds income. Fund houses may have to deduct 10% if income from mutual funds units is over Rs.5000.
Currently, fund houses deduct TDS of 15% in equity funds and 30% in debt funds from NRI investors. There is no provision to deduct TDS from domestic investors.
Investors can claim refund on this TDS based on their tax liability at the time of filing returns.
In a budget memorandum, the government said, “Insert a new section 194K 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 there on at the rate of ten percent. It may also be provided for threshold limit of Rs.5,000 so that income below this amount does not suffer tax deduction. It is also proposed to defined “Administrator”, “specified company”, as already defined in clause (35) of section 10. It is also proposed to define “specified undertaking” as in clause (i) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act,2002. It is also proposed to provide that where any income is credited to any account like suspense account, in the books of account of the person liable to pay such income, the liability for tax deduction under this section would arise at that time.”
While a few industry experts said that in the above statement, income refers to dividend income only, others believe that the TDS will be applicable on mutual funds redemption proceeds irrespective of dividend income or capital gains.
