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The dividend obtained from mutual funds is taxable in the palms of unit holders. From 1st April 2020, the dividends obtained on mutual funds are taxed as ‘Income from different sources’ whereas submitting tax returns. The dividend income will then be taxed on the slab charge relevant to you. It is attention-grabbing to notice that the efficient tax charge on your dividend income from mutual funds will differ from 0% or no tax to 42.74% of your dividend income, if it exceeds the brink of ₹5 crore in a monetary yr.
Your tax legal responsibility on dividend income from mutual funds develop into zero in case your income doesn’t exceed the fundamental exemption restrict of upto ₹2.5 lakh. Your dividend income turns into tax free even when it exceeds this primary exemption however doesn’t exceed ₹5 lakh.
A resident particular person can declare deduction beneath Section 87A if his complete income doesn’t exceed ₹5,00,000. Rebate beneath part 87A is accessible in the type of deduction from the tax legal responsibility. Rebate beneath part 87A shall be decrease of 100% of income-tax legal responsibility or ₹12,500.
Tax deducted at supply or TDS on dividend income from mutual funds
Mutual fund home may also deduct 10% tax at supply earlier than distributing the dividend over ₹5,000.
“The TDS would apply even in case you have opted for dividend reinvestment scheme as reinvestment of the dividend is treated as receipt of dividend in your income. So mutual fund house will invest only the amount of dividend after deduction of tax in the scheme,” says Balwant Jain, tax and funding professional in ICICI Pru AMC’s month-to-month journal.
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