INSERTION OF NEW SECTION 194K FOR TDS ON DIVIDEND INCOME IN RESPECT OF UNITS OF MUTUAL FUNDS
1. Existing Tax Regime: How STT came into picture?
a. When some taxpayers started evading tax on capital gains by not showing the details of gain on the sale of stocks
b. The Finance Act, in 2004, introduced the Securities Transaction Tax (STT) as a tool of efficient way of collecting taxes from financial market transactions.
2. New Tax Regime:
a. In The Finance Bill, 2020 government has abolished dividend distribution tax, and now the dividend income will be taxable in the hands of receivers / investors. Honorable Finance Minister in their speech inserted section 194K w.e.f 01.04.2020 for deduction of tax on income in respect of units of Mutual funds.
a) CBDT clarified that TDS will be applicable 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.
b) Hence TDS is required to be deducted on dividend payment by mutual funds only and not on gain arising out of redemption of units.
Any person who is responsible for paying to a resident any income in respect of
a) Units of a Mutual Fund or
b) Units from the Administrator of the specified undertaking; or
c) Units from the specified company,
is required to deduct the TDS at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode.
TDS is required to be deducted:
a) at the time of credit of income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier
b) when payer credited such income to any other account whether called “suspense account” or by any other name, it is considered as deemed income and TDS required to be deducted
Person paying dividend is required to deduct the TDS on income credited or paid by him if such payment exceeds the threshold limit at following rate:
*Section 194K is not applicable for payment of dividend to NRI
TDS is required to deduct if the aggregate amounts of such income which is credited or paid during the financial year exceeds Rs. 5,000/-
No TDS is required to be deducted for amount which does not exceed five thousand rupees
a) The statement of return in form No. 26Q is required to be filled quarterly.
b) The TDS certificate i.e Form No. 16A is required to be issued quarterly within 15 days from the due date for furnishing the quarterly TDS statements
Failure to deduct the TDS or to remit tax deducted in the governments account within stipulated time limit would attract interest and penalty as follows
a. Disallowance of Expenditure as per Section 40(a)(ia)
b. Interest @ 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted
c. Interest @ 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid
d. Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C
|Existing Regime||New Regime|
|1. Capital Gain|
|a) Capital gains are taxable in the hands of the taxpayer. Any long-term capital gains earned from the equity-oriented mutual funds will be taxed at the rate of 10% if the gains exceed Rs 1 lakh in a year.
b) Short-term capital gains from the mutual funds, subject to STT, will be taxed at the rate of 15%.
|A mutual fund is not liable to deduct TDS on capital gains arising on redemption of units by unit holders.|
|Tax on the dividend (DDT) which is paid by the Fund Houses (AMC) on behalf of the investors.||DDT has been abolished as per the Budget 2020; from FY 2020-21, dividend income will be taxable in the hands of the receiver/investor.|