Dividend distribution tax on dividend payouts to unit holders in an equity oriented fund

The existing provisions of section 115R, inter alia, provide any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate specified in the section. However, in respect of any income distributed to a unit holder of equity oriented funds is not chargeable to tax under the said section.

With a view to providing a level playing field between growth oriented funds and dividend paying funds, in the wake of new capital gains tax regime for unit holders of equity oriented funds, it is proposed to amend the said section to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional incometax at the rate of ten per cent on income so distributed. For this purpose, equity oriented fund will have the same meaning assigned to it in the new section 112A of the Act.

This amendment will take effect from 1st April, 2018.

[Clause 40, 41 & 214]

 

Dividend distribution tax on equity oriented mutual funds imposed on distributed income creating parity with growth funds. Amendment requires a mutual fund that qualifies as an equity oriented fund, as defined under the new capital gains provision, to pay additional income-tax on income distributed to its unit holders, aligning tax treatment between dividend-paying and growth-oriented equity funds; the change is effective from the start of the next fiscal year.