In a move that will bring relief to investors, the government has announced the removal of the Tax Deducted at Source (TDS) on the repurchase of units by Mutual Funds (MF) and Unit Trust of India (UTI). This change, effective from 1st October 2024.
Understanding the Change
Previously, under Section 194F, TDS was levied at 20% on the repurchase of units by Mutual Funds or UTI. This meant that when investors opted to sell their units back to the fund, a TDS of 20% was deducted on the gains made from such a transaction. This tax was a point of concern for many investors, particularly those who were looking to liquidate their investments in MFs or UTI units.
However, starting from 1st October 2024, this TDS will no longer be applicable. This means that any repurchase of units by Mutual Funds or UTI made after this date will not attract TDS. Until 30th September 2024, the existing TDS rate of 20% will continue to apply.
Impact on Investors
The removal of TDS on repurchase by Mutual Funds / UTI is expected to have a positive impact on investors:
- Increased Returns: Investors will now receive the full value of their repurchased units without any deduction of TDS. Indirectly it implies better returns.
- Simplified Taxation: This removal will simplify the tax process for investors, reduce paperwork and overall effort associated with claiming refunds.
- Encouragement for Investment: By removing the TDS on repurchase, the government aims to encourage more people to invest in mutual funds and UTI units, knowing that they can access their funds without facing a tax deduction on their returns.
Transition Period: Up to 30th September 2024
It is important for investors to note that the 20% TDS rate under Section 194F will still apply to any repurchase transactions made up until 30th September 2024. Therefore, investors planning to repurchase their units before this date should factor in the TDS deduction in their financial planning.