The government on Tuesday clarified that a budget proposal for deduction of 10% tax at source while making dividend payments above ₹5,000 a year to shareholders or mutual unit holders will not apply to any capital gains on redemption of mutual fund units.
Central Board of Direct Taxes said in a statement that it received queries whether the TDS requirement proposed in the Finance Bill 2020 would also apply to capital gains arising on redemption of mutual fund units.
“It is hereby clarified that under the proposed section, a mutual fund shall be required to deduct TDS at the rate of 10% only on dividend payment and 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," said the statement.
The Finance Bill had proposed to shift the tax liability on dividends from the company to shareholders and introduced the TDS requirement while accepting the long standing demand for giving relief to companies on the dividend distribution tax liability. Several industry representatives have said the tax outgo on dividends will go up on account of the fact that it will now be taxed as per the applicable personal income tax slab.