Table of Contents
1. Section 194K of the Income Tax Act, 1961
- Section 194K contains provisions relating to TDS from all payments made to residents in the nature of income from mutual funds.
2. What are the types of income earned from mutual funds?
- Capital gain arising from the redemption of mutual fund units
- Dividend Income
3. What is the taxability and resulting applicability of section 194K on the above mentioned income?
- Capital gain arising from the redemption of mutual fund units – Taxable in the hands of the unitholder, long term capital gain is taxed at 10% in excess of 1 lakh, short term capital gain is taxed at 15% – However, TDS under section 194K is not applicable
- Dividend Income – Taxable in the hands of the unitholder after abolishment of DDT (Dividend Distribution Tax) – TDS under section 194K is applicable.
- Any other income from mutual fund – TDS under section 194K is applicable.
4. What is the maximum amount upto which no tax needs to be deducted under this section?
- No tax needs to be deducted if the aggregate amount of such income to be paid or credited to the payee does not exceed Rs. 5,000 in a financial year.
5. Who shall deduct TDS under this section?
- TDS shall be deducted by any person responsible for paying to a resident any income as mentioned above. (Refer FAQ no 3).
6. What is the rate at which tax is deducted under section 194K?
- Tax is deducted at the rate of 10%.
- If the payee does not furnish his/her PAN, tax will be deducted at 20%.
7. Does section 194K apply to non-residents?
- No, Tax on income from mutual funds earned by non-residents should be deducted as per section 195.
- Section 194K does not apply to non-residents.