The debate on whether TDS will be applicable only on dividend income or entire redemption proceeds i.e. dividend income and capital gains has finally come to an end.
The Central Board of Direct Tax (CBDT) has clarified that there will be no tax deducted at source (TDS) on capital gains in mutual funds.
In a press release, CBDT said, “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.”
With this, fund houses will have to deduct TDS from dividend income exceeding Rs.5000 from mutual funds. For NRIs,this rate would be 20% for NRIs.
Experts believe that the dividend plan in mutual funds will become less attractive.
