No TDS on Mutual Fund Capital Gains from April 2020: IT Dept clarifies

The IT department has clarified that TDS will be applicable to mutual fund dividends only and not capital gains

No TDS on mutual fund capital gains

Published: February 4, 2020 at 8:56 pm

Last Updated on

Thanks to an irresponsible media, an extremely clear proposal in budget 2020 – TDS on mutual fund dividends above Rs. 5000 – was twisted and reported to included mutual fund gains as well. Thankfully the Central Board of Direct Taxes has clarified that it is not the case.

The Central Board of Direct Taxes released a circular today stating a Mutual Fund shall be required to deduct TDS @ 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.

We had already reported why this is the case: Will TDS apply to mutual fund capital gains from April 2020?

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The law distinguishes income arising from the transfer of mutual fund units (capital gains) and income arising in respect of mutual fund units (dividends). We had pointed this out quoting this clause in section 10 of the income tax act.

Provided that this clause shall not apply to any income arising from the transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be.

This is needless confusion. Of course, mutual fund sales guys were more scared than investors! From April 1st 2020, TDS of 10% will not apply to mutual fund capital gains. Only mutual fund dividends above Rs. 5000 will be subject to TDS of 10%

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