10% TDS on capital gains in mutual funds?
Currently, TDS is deducted for NRI investors in mutual funds but not resident individuals. The latter have to calculate and pay tax on the basis of self-assessment.Updated: Feb 02, 2020, 08:40 IST
The Finance Bill has, perhaps unintentionally, introduced TDS (tax deduction at source) on capital gains in mutual funds, along with TDS on dividends, experts said.
Union finance minister Nirmala Sitharaman announced her intention to abolish Dividend Distribution Tax (DDT) on mutual fund dividends. These were to be made taxable at slab rate and TDS was to be deducted on them at 10% for dividends exceeding Rs 5,000 per year. Experts say the Bill also introduced TDS on capital gains in mutual funds for resident individuals. “Income under the act includes capital gains. Hence capital gains in the hands of investors would also be liable for deduction of TDS at 10%,” said Dhruv Rawani, a Mumbai based Chartered Accountant.
“Prima Facie, mutual funds will be liable to deduct TDS on capital gains as well as dividends as per the Finance Bill. This gets strengthened while reading the definition of income under Section 2(24) which includes capital gains,” said Balwant Jain, a Mumbai based Certified Financial Planner and Chartered Accountant. “This will cause a lot of hardship to mutual fund investors and would opens up an arbitrage with direct equity and insurance investment products,” he said. Currently, TDS is deducted for NRI investors in mutual funds but not resident individuals. The latter have to calculate and pay tax on the basis of self-assessment.