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Budget 2020 shocker: Now, pay 10 per cent TDS on your mutual fund income

NEW DELHI: Budget 2020-21 has a hidden shocker for mutual fund investors. Those enjoying returns from MFs will now find their pay-outs become lower as the Union Budget has introduced a deduction of tax on income from mutual funds if it is in excess of Rs 5,000.

Buried in the Finance Bill 2020 is a proposal to insert Section 194K in Clause 80 to tax MF returns. “(i) units of a Mutual Fund specified under clause (23D) of section 10; or (ii) units from the Administrator of the specified undertaking; or (iii) 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 ten per cent,” it said.

Tax officials say the move was initiated to keep treatment of MFs at par with bank fixed deposit where tax is already deducted at source, and will also curb under-reporting, which was so far done on a voluntary basis.

Experts, however, say the provision is a dampener as it would leave less cash in the hands of investors. TDS on income from mutual funds would be 10% as in the case of any other income sources, other than salary.

If an investor falls in the higher tax bracket, the remainder tax would have to be paid by him while filing his returns after deducting tax set-offs.

However, if the investor falls in a lower income tax slab, then he can claim a refund while filing income tax returns.

“Earlier, an individual taxpayer was required to pay tax on the dividend at 10% only in case dividend received from Indian companies was more than Rs 10 lakh and no tax was payable in case of dividends received from mutual funds,” said Shalini Jain, tax partner, EY India.