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10 per cent TDS applicable only on dividend payment by mutual funds, says CBDT

Updated: Feb 05, 2020 12:32:31pm
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10 per cent TDS applicable only on dividend payment by mutual funds, says CBDT

New Delhi, Feb 5 (KNN) The tax department on Tuesday has issued a clarification that the requirement of deducting TDSA at 10 per cent will only apply for dividend payments by mutual funds.

In a statement, CBDT said queries have been raised if 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 at 10 per cent 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," it said.

Finance Minister Nirmala Sitharaman had in Budget 2020-21 scrapped dividend distribution tax (DDT) paid by companies and mutual funds on dividend paid to shareholders or unit holders.

In place it was proposed to levy tax deducted at source (TDS) of 10 per cent on dividend/income paid by a company or mutual fund to its share/unit holder if the amount of such dividend/income exceeds Rs 5,000 in a year.

The Finance Bill, 2020, has proposed the insertion of a new section — 194K — in the Income Tax Act, which states "any person responsible for paying income arising from units of mutual fund or a specified company must deduct tax at the rate of ten percent of such income".

It went on to state that necessary clarification, if required, shall be proposed in the relevant provision of the law.

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