Rationalisation of Tax on Income distributed to unit holders dividend distribution tax

Under the existing provisions contained in section 115R(2) of the Income-tax Act, a Mutual Fund is liable to pay additional income-tax on the amount of income distributed to its unit holders. It is proposed to levy additional income-tax at a higher rate of 30 per cent. on income distributed by debt funds to a person other than an individual or HUF.

It is therefore proposed to amend section 115R(2) to provide that the Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate of –

(a) 25 per cent. if the recipient is an individual or HUF in case of distribution by a money market mutual fund or a liquid fund;

(b) 30 per cent. if the recipient is any other person in case of distribution by a money market mutual fund or a liquid fund;

(c) 12.5 per cent. if the recipient is an individual or HUF in case of distribution by a debt fund other than a money market mutual fund or a liquid fund; and

(d) 30 per cent. if the recipient is any other person in case of distribution by debt fund other than a money market mutual fund or a liquid fund.

There will be no change in the rate of income-tax in case of distribution to any individual or HUF. Distribution of income by an equity-oriented fund shall continue to be exempt from tax.

This amendment is proposed to take effect from 1st June, 2011.

Related posts:

1. Government Proposes 5 Percent tax on Dividend distributed by mutual fund or life insurer
2. DTC proposes five per cent dividend distribution tax on mutual fund houses and life insurers
3. Tax rate of Income Tax, Dividend Distribution, STT, Wealth, MAT & Special Income – A.Y. 2011-12
4. Budget 2011- Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones
5. Tax rate applicable for A.Y. 2011-12 on Income, Dividend, Wealth, MAT, STT, Capital Gain and Presumptive Income