Initial reading of TDS norms in mutual funds indicates that there may be TDS on both capital gains and dividend, say RTA officials.
In the Union Budget 2020, 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.
However, the proposal has created confusion among the industry stakeholders, as the government has not explicitly defined the meaning of ‘any income’.
Both CAMS and KFintech believe that the proposed TDS is likely to be applicable on both capital gains and dividend.
Anuj Kumar, MD & CEO, CAMS believes that there is enough reason to believe that TDS will be applicable on both capital gains and dividend income. Currently, there is no TDS for resident individual on mutual funds but fund houses deduct TDS from income of NRI investors. RTAs are equipped to handle TDS from resident individuals as well if required.
Kumar further said that fund houses would consider indexation benefits or grandfathering before arriving at income. Only if such an income exceeds Rs.5000, TDS will be applicable.
CA Ravikumar Somasi, GM, KFinTech is of the view that while the CBDT Circular 715 of 1995 had explicitly mentioned that TDS was not applicable on capital gains, there is no guidance on this now.
It is also a fact that deduction of NRI TDS is not in line with this, when it was introduced.
Given that Section 2 of Indian Income Tax includes both dividends and capital gains as income, there is a need to take specific clarification from CBDT on the applicability of TDS on capital gains, he added.
Somasi further said that the TDS rate varies with the availability of PAN, as per the TDS guidelines. “There will be a higher TDS of 20% on folios where PAN is not quoted or invalid. Simply put, fund houses will have to deduct higher TDS at the rate of 20% for all no PAN and invalid PAN cases and PEKRN cases,” he said.
However, the fine print and the guidance has to be considered, he added.
The compliance head of an AMC said that investors should not worry about TDS as they can get tax refund. “Investors have to file their tax returns after obtaining TDS certificates. Investors will have to file tax returns to claim refund if any.”
The new provisions on TDS will be applicable with effect from April 1, 2020 subject to approval from both the houses and the President of India.
Disclaimer: Please note that this article does not tantamount to be a tax advice of any nature or a recommendation. Please take advice from a qualified tax advisor for your guidance.
