Section 194K of the Income-tax Act mandates tax deduction at source (TDS) at 10% on income from mutual fund units, specified undertakings, or companies, if the total income exceeds Rs. 5,000 annually. The Finance Bill 2025 proposes increasing this threshold to Rs. 10,000 per year. This change aims to reduce TDS compliance for small investors. The amendment will take effect from April 1, 2025.
Budget 2025: Section 194K – Income in respect of units
Section 194K of the Act requires that for any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified under clause (23D) of section 10; or units from the Administrator of the specified undertaking; or units from the specified company, shall, deduct income-tax at the rate of ten per cent, provided the amount of such income to income to a payee exceeds Rs. 5,000/- in a year.
2. It is proposed to increase this threshold amount for requirement of deduction of tax at source under this section from Rs. 5,000/- to Rs. 10,000/-.
3. This amendment will take effect from the 1st day of April 2025.
[Clause 61]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 61 of the Bill seeks to amend section 194K of the Income-tax Act relating to income in respect of units.
The said section provides that any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified under clause (23D) of section 10; or units from the Administrator of the specified undertaking; or 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.
Clause (i) of the proviso to the said section provides that no tax shall be required to be deducted under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed five thousand rupees.
It is proposed to amend clause (i) of the proviso of the said section so as to provide that no tax is required to be deducted under this section if the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed ten thousand rupees.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
61. Amendment of section 194K.
In section 194K of the Income-tax Act, in the proviso, in clause (i), for the words “five thousand rupees”, the words “ten thousand rupees” shall be substituted.
