Sec.194K – TDS on Mutual Fund Income – How to avoid TDS?

• All types of Mutual Fund schemes are covered under the new tax regime, i.e. equity-oriented and other than equity-oriented mutual fund schemes under dividend payout and dividend reinvestment options.
• TDS is required to be deducted at the time of credit of such income to the account of the unitholder or payment of any income to unitholder, whichever is earlier.
• The amount of DIVIDEND REINVESTED under the dividend reinvestment option will be deemed as a dividend paid and accordingly, TDS provision shall apply.
• The threshold limit to deduct the TDS on such dividend income is Rs.5,000. However, due to the practical difficulties faced by Mutual Fund Companies, they started to deduct the TDS on all such dividend payouts. It is the responsibility of the investors to show the same during IT Filing and claim back the TDS if the total dividend income in a financial year is less than Rs.5,000.
• For NRIs, the TDS rate is different. As per section 196A of the Act, TDS at the rate of 20% (plus applicable surcharge and cess) should be deducted on dividend income credited/paid to NRIs. There is no threshold limit applicable in case of dividend income credited/paid to NRIs.
• If your folio is not registered with PAN, then the TDS rate is 20% (This rate is from 1st April to 13th May 2020). Due to the Corona Virus, the Government slashed the TDS rate from 14th May 2020 to 31st March 2020. Hence, during this period, the reduced TDS rate is 15%.
• As per section 64(1A) of Act, the income of minor child gets clubbed with the income of the parent for tax purposes. Accordingly, the parent should provide a declaration under section 199 of the Act read with Rule 37BA(2) of the Income-tax Rules, 1962 to the Mutual Fund for TDS deduction under the PAN of the parent. In the absence of such a declaration, the Mutual Fund should deduct TDS on dividend credited/paid under the PAN of the minor.
• The TDS Certificate will be generated on the TRACES portal by the Mutual Fund and issued to the unitholders on a quarterly basis as specified under the law.
• A resident unitholder may make an application to the income-tax authorities under section 197 of the Act for obtaining a certificate for lower / non-deduction of TDS on dividend income credited/paid by Mutual Fund.

Sec.194K – TDS on Mutual Fund Income – How to avoid TDS?

A person (not being a company or firm) can submit Form No.15G15H to Mutual Fund for non-deduction of TDS under section 194K of the Act provided that the tax on his estimated total income (including such dividend received from Mutual Fund) of the financial year is nil.

It is recommended that the form should be submitted on an annual basis at the start of the financial year.

Conclusion:-Do remember that Tax and TDS are applicable on Dividend income under this section. TDS rate is 10% (This rate is from 1st April to 13th May 2020). Due to the Corona Virus, the Government slashed the TDS rate from 14th May 2020 to 31st March 2020. Hence, during this period, the reduced TDS rate is 7.5%. However, your PAN has not linked then TDS rate is at 20% (This rate is from 1st April to 13th May 2020). Due to the Corona Virus, the Government slashed the TDS rate from 14th May 2020 to 31st March 2020. Hence, during this period, the reduced TDS rate is 15%. You can still submit Form15G/15H and avoid TDS. But avoiding TDS does not mean avoiding tax. Also, check the eligibility before submitting the Form15G/H to the mutual fund companies. Due to difficulties in understanding your minimum threshold limit of Rs.5,000, mutual fund companies started to deduct the TDS from all your dividend income.

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