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Mutual fund income over ₹5,000 will now be subject to 10 per cent tax deducted at source (TDS), according to a proposal by the Ministry of Finance under the Union Budget 2020.
According to a proposal included in Clause 80 of the Finance Bill 2020, the Ministry has proposed to insert a new section, 194K, below 194J of the existing Income Tax Act, proposing to tax income earned from mutual funds at 10 per cent.
“After Section 194J of the Income Tax Act, the following section shall be inserted, namely:–
194K: Any person responsible for paying to a resident any income in respect of ― (a) units of a mutual fund specified under Clause (23D) of Section 10; or (b) units from the Administrator of the specified undertaking; or (c) 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 thereon at the rate of 10 per cent,” the Finance Bill read.
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‘No tax will be levied on income from mutual fund’According to Section 194K, any ‘resident’ deriving an ‘income’ from mutual funds specified under Section 10 Clause (23D) will be subject to have a 10 per cent TDS.
Before the clause was introduced, TDS on mutual funds was deducted for NRI investors and not residents.
Earlier, only dividend income on mutual funds exceeding ₹ 1 lakh was taxed at 10 per cent. Unless a clarification is issued, the new tax proposal will apply to capital gains from mutual funds as well. This is because the definition of ‘income’ under the existing Income Tax Act as per Section 2 also includes “profit and gains.”
The Finance Ministry has also proposed to abolish Dividend Distribution Tax (DDT). With the abolition of DDT, people with income up to ₹ 5 lakh will not have to pay tax on dividend income. The proposal aims to tax divided in the hand of recipients. Earlier, the tax was levied on companies issuing dividends.
The Ministry has also introduced a new income tax regime as part of the Union Budget 2020 with lower tax rates.In the proposal, the government has removed over 70 exemptions and deductions from over 100 exemptions and deductions as provided in the old regime.
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