TDS of 10% limited to dividend on MF units

NEW DELHI: The tax department on Tuesday clarified that the Budget proposal of 10% TDS will be applicable only on dividend payment by mutual funds and not on gains arising out of redemption of units.
Finance minister Nirmala Sitharaman had in Budget 2020-21 scrapped dividend distribution tax (DDT) paid by companies and mutual funds on dividend paid to shareholders or unit holders. In its place, it was proposed to levy tax deducted at source (TDS) of 10% on dividend or income paid by a company or mutual fund to its share or unit holders if the amount of such dividend or income exceeded Rs 5,000 annually.
The move comes along with a provision for a tax collection at source (TCS) on overseas remittances and payments to travel agents for overseas travel. In both cases, the idea is to track those using the services or receiving dividend and get them to file returns.
Currently, a large number of people who use the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) for things such as overseas travel or transfer money overseas for education have taxable income but do not pay tax, an analysis by the Central Board of Direct Taxes has shown.
By getting these individuals to cough up TCS, for which credit will be available, the government is hoping to get them to file returns instead of sending notices to everyone, from senior citizens travelling abroad or to all parents whose children are studying overseas. In the 2017 Budget, the government had imposed a 1% TCS on cars that cost over Rs 10 lakh with the then finance minister Arun Jaitley pointing out that over the previous five years, 1.25 crore cars were sold in the country although there were only 1.7 lakh people showing income of over Rs 50 lakh. Similarly, he had said, the number of Indian citizens who flew abroad, either for business or tourism, was estimated at 2 crore in the year 2015.