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Subbu's Solution

In the Income Tax Act a new Section 10(34) was inserted some time back (if I am right, it was in the 2016 -2017 Union Budget) which says that dividend received in a financial year, from Indian companies in excess of Rs. Ten Lakhs will be taxed at the rate of 10%. Does this limit of Rs. Ten Lakhs include dividends from equity schemes of mutual funds or only from dividend from companies?

In the recent budget for 2018 -2019, Dividend Distribution Tax at the rate of 10% on dividends paid by equity schemes of mutual funds was introduced.

I would like to know if dividends received in a financial year from equity schemes of mutual funds are totally tax free in the hands of the investor without any upper limit and if not, what is the upper limit to be tax free?

According to Section 10 (34) of the Income Tax Act, 1961, the deduction of 10% Tax if the Dividend amount exceeds Rs. 10 lacs is applicable only to Domestic Companies and not to dividend distributed by Mutual Fund Schemes. Hence Mutual Funds would deduct only Dividend Distribution Tax (DDT) from dividend payout from both Debt and Equity Schemes.

Dividends received by individual investors from Mutual Fund Schemes are post deduction of DDT. Hence the dividend amount is totally tax free in the hands of the investor and he/she need not pay any further tax on dividend income.

To conclude, dividends received from Mutual Funds are tax free without any upper limit.

If you have any further queries we are happy to help you. You can call us on 1800-209-3863 or Email Customercare@QuantumAMC.com.

Disclaimer:

Subbu's Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited. The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. The responses are not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or units of the Mutual Fund. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.

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