The Dividend Distribution Tax paid by Companies has been abolished in the Finance Bill 2020 and dividend income shall be taxable in the hands of investors now. Sec 194K was re- introduced for deduction of tax on income in respect of units of Mutual Funds.
1. Deductor – Any person who is responsible for paying dividend in respect of:
- Units of a Mutual Fund; or
- Units from the Admin of the specified undertaking; or
- Units from the specified company
2. Deductee – A Resident.
3. Time of Deduction – At the time of credit or payment, whichever is earlier, if amount exceeds ₹ 5,000.
4. Rate of TDS – 10% on dividend income earned on Mutual Funds.
5. Threshold Limit : Latest Update – As per the Budget 2025 update, effective from 1st April 2025, the threshold limit of TDS on Income from mutual fund units has been increased.
| Period | TDS Rate | Threshold Limit |
| Before 01/04/2025 | 10% | ₹ 5,000 |
| On or after 01/04/2025 | 10% | ₹ 10,000 |
Notes:
- TDS should be deducted at 20% if the investor does not provide PAN.
- In the case of NRI investors, TDS should be deducted as per Section 195
- Capital gain income is also exempted from the applicability of Section 194K.
Section 194EE- TDS on Payments in respect of Deposit under NSS