On Tuesday, the Central Board of Direct Taxes (CBDT) clarified that the Union Budget proposal of 10 percent TDS (tax deducted at source) will only be applicable on dividend payment by mutual funds and not on gains arising from redemption of its units.
On 1 February, Finance Minister Nirmala Sitharaman in her Budget speech said that dividend distribution tax (DDT) paid by companies and mutual funds on dividend paid to shareholders or unitholders would be removed. It was instead, proposed to levy TDS at 10 percent on dividend/income paid by a company or mutual fund to its share/unitholder if the amount of such dividend/income exceeds Rs 5,000 in a year.
Following many queries that were raised from this change, the CBDT said, "It is hereby clarified that under the proposed section, a mutual fund shall be required to deduct TDS at 10 percent only on dividend payment & 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," it added.