Union Budget 2018- Dividend distribution tax on dividend payouts to unit holders in an equity oriented fund

The existing provisions of section 115R, inter alia, provide any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate specified in the section. However, in respect of any income distributed to a unit holder of equity oriented funds is not chargeable to tax under the said section.

With a view to providing a level playing field between growth oriented funds and dividend paying funds, in the wake of new capital gains tax regime for unit holders of equity oriented funds, it is proposed to amend the said section to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional income-tax at the rate of ten per cent on income so distributed. For this purpose, equity oriented fund will have the same meaning assigned to it in the new section 112A of the Act.

This amendment will take effect from 1st April, 2018.

Extract of Clause 40, 41 & 214 of Finance Bill 2018

Clause 40 of the Bill seeks to amend section 115R of the Income-tax Act relating to tax on distributed income to unit holders.

The said section, inter alia, provides that any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate specified in the said section. However, in respect of any income distributed to a unit holder of equity oriented funds in respect of any distribution made from such funds is not chargeable to tax under the said section.

It is proposed to amend the said section so as to provide that where any income is distributed to any person by an equity oriented fund, the fund shall be liable to pay additional income-tax at the rate of ten per cent. on income so distributed.

It is further proposed to omit clause (b) of the second proviso to sub-section (2) which is consequential in nature.

These amendments will take effect from 1st April, 2018.

Clause 41 of the Bill seeks to amend section 115T of the Income-tax Act relating to Unit Trust of India or Mutual Fund to be an assessee in default.

The said section, inter alia, provides the definition of “equity oriented fund” to mean the Unit Scheme, 1964 made by the Unit Trust of India; and such fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent. of the total proceeds of such fund.

It is proposed to amend the said clause so as to define “equity oriented fund” as a fund referred to in clause (a) of Explanation to section 112A and the Unit Scheme, 1964 made by the Unit Trust of India.

This amendment will take effect from 1st April, 2018.

Clause 214 of the Bill seeks to amend section 97 of the Finance (No.2) Act, 2004 relating to definitions.

The existing provisions of said section 97, inter alia, provides the definition of “equity oriented fund”.

It is proposed to amend the said clause so as to define “equity oriented fund” as a fund referred to in clause (a) of Explanation to section 1 12A of the Income-tax Act.

This amendment will take effect from 1st April, 2018.

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Tags : Budget (1957) Budget 2018 (400)

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