Budget 2020: 10% TDS applicable on Capital Gains in Mutual Funds

TDS Mutual Funds - Capital Gain - Budget 2020 - Finance Minister - Taxscan

The Finance Minister Nirmala Sitharaman while presenting the union budget for 2020 on Saturday has proposed for a 10% TDS on capital gains from mutual funds along with TDS on dividends for resident individuals who exceed Rs.5000 in income from such funds

It has been proposed for insertion of a new section 194K which states :

“ 194K. Any person responsible for paying to a resident any income in respect of:

    (a) units of a Mutual Fund specified under clause (23D) of section 10; or

   (b) units from the Administrator of the specified undertaking; or

   (c) 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 percent

Provided that the provisions of this section shall not apply 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.  

At present, TDS is deducted for NRI investors in mutual funds but not from resident individuals. The latter have to calculate and pay tax on a self-assessment basis was the earlier scenario.

This proposal has received mixed responses from the market. Many believe that inflows will come down and it will create an unnecessary headache in the filing of ITR and may cause loss of few govt benefits too in the process. While other few believe that the deduction of TDS is a welcome step on par with TDS on Fixed Deposits as it will prevent big-ticket investors from mutual funds resulting in only retail investors in the mutual fund industry.

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