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Guide to Mutual Funds

What is Dividend Distribution Tax & when it is Levied?

Dividend income from mutual funds was tax-free in the hands of the investor. However, in Budget 2020, Finance Minister Nirmala Sitharaman abolished the Dividend Distribution Tax (DDT). Now the burden of paying tax on dividends is transferred to the shareholders. 

Companies are not liable to pay Dividend Distribution Tax (DDT) while distributing dividends to shareholders. 

What is Dividend Distribution Tax (DDT)?

According to the Income Tax Act, a company distributing a dividend has to pay a tax on the total dividend amount. This is known as the dividend distribution tax (DDT). It is a tax on dividends distributed by equity and debt-oriented mutual fund schemes.

Who is eligible to pay Dividend Distribution Tax?

Under section 115-O of the Income Tax Act, any domestic company that declares and distributes dividends is liable to pay the Dividend Distribution Tax (DDT). The company is required to pay the DDT within 14 days of declaring, distributing, or paying the dividend, whichever is earliest. 

If the company fails to pay the dividend tax within the stipulated time, it will be charged an interest of 1% every month until the DDT is paid to the government.

Dividend Distribution Tax in Mutual Funds

DDT is also applicable to mutual funds: 

To determine the investment goals, you have to understand the tax implications & charges.

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Units 18/33