The Finance Bill, 2020 proposed to remove Dividend Distribution Tax (DDT) at the level of
Company/ Mutual Fund and proposed to tax the same in the hands of share/unit holder. It
was also proposed to levy TDS at the rate of 10% on the dividend/ income paid by the
Company/Mutual Fund to its share/unit holder if the amount of such dividend/ income
exceeds five thousand rupees in a Financial Year.
Queries have been received to the effect that whether under the proposed section 194K, the
Mutual Fund would be required to deduct TDS also on the capital gains arising on
redemption of units. It is hereby clarified that under the proposed section, 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.