TDS only on IDCW income and not capital gains from mutual funds CBDT

TDS only on IDCW income and not capital gains from mutual funds: CBDT

In her presentation of the Union Budget for 20-21 on Feb 1st 2020, Union Minister of Finance Nirmala Sitharaman announced that the companies and mutual funds would no longer be required to pay IDCW distribution tax and such divided will now be taxed in the hands of shareholders or unit holders at the applicable rate. The budget proposed that a tax deducted at source (TDS) 10% be levied instead on the IDCW/income paid either by a company to their shareholder or a mutual fund to its unitholder if the IDCW/income exceeds Rs 5000 annually.

Timely intervention

Allaying the fears of mutual fund investors on Tuesday, February 4th the Central Board of Direct Taxes issued a clarification that a mutual fund will only be required to deduct TDS on the income generated from IDCW payment. No tax will be levied on income accrued from capital gains, as assumed, by a primary reading of the Budget proposals.

No impact of new tax incidence on growth option

There was scepticism in the minds of mutual fund experts about the levy of TDS from the very beginning and a clarification may have been sought sooner than later. In the meanwhile, some investors were already feeling jittery about the fate of their investments post the new tax incidence that seemed to suggest that the definition of “income” under Section 2(24) of the Income Tax Act also includes capital gains from mutual funds.
Source: CBDT Press Release

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