New Delhi [India], Feb 4 (ANI): Mutual funds will have to deduct TDS at 10 per cent only on dividend payments and not on the income which is in the nature of capital gains, according to the clarification by the Central Board of Direct Taxes (CBDT) on Tuesday."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 per cent on the dividend/ income paid by the company/mutual fund to its share/unitholder if the amount of such dividend/ income exceeds five thousand rupees in a financial year," the release by CBDT read.It added that the CBDT had received queries, after the aforementioned changes were proposed in the Budget, regarding deduction of TDS by mutual funds on capital gains."It is hereby clarified that under the proposed section, a Mutual Fund shall be required to deduct TDS at 10 per cent 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," the release read.Finance Minister Nirmala Sitharaman on Saturday announced the abolition of DDT, a move that will result in revenue foregone to the tune of Rs 25,000 crore, during the presentation of the Union Budget in the Parliament."The dividend will be taxed only in the hands of the recipients at their applicable rates," she said while presenting the Union Budget for 2020-21 on Saturday.Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 per cent plus applicable surcharge and cess in addition to the tax payable by the company on its profits.Sitharaman said the system of levying DDT results in an increase in tax burden for investors, and especially for those who are liable to pay tax less than the rate of DDT if the dividend income is included in their income.Further, non-availability of credit of DDT to most of the foreign investors in their home country results in a reduction of the rate of return on equity capital for them. (ANI)

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