Section 194K of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on income distributed to unit holders of mutual funds, UTI, and other specified funds. Below is a structured breakdown of its provisions:
1. Applicability of Section 194K
✅ Covered Payments:
- Dividend incomefrom mutual funds (equity/debt).
- Income distributedby Unit Trust of India (UTI).
- Other specified funds(e.g., REITs, InvITs).
❌ Exemptions:
- Capital gains(covered under Section 194K does not apply).
- Dividends from equity-oriented funds(tax-free in hands of investors post-2020).
- Payments ≤ ₹5,000/year(per payee, per fund).
2. TDS Rates & Thresholds
| INCOME TYPE | TDS RATE (PAN PROVIDED) | TDS RATE (PAN NOT PROVIDED) |
| Dividend from Debt Funds | 10% | 20% |
| Other Specified Incomes | 10% | 20% |
| Threshold | ₹5,000/year per fund (if exceeded, TDS applies on full amount). |
Example:
- Dividend from Debt Fund: ₹6,000 (PAN provided).
- TDS (10%): ₹600 → Net Payment: ₹5,400.
3. Who Must Deduct TDS?
- Mutual Fund Houses(AMCs).
- UTI & other specified fund managers.
4. Compliance Requirements
- TDS Deduction: At the time of crediting incometo the unit holder.
- TDS Deposit: By the 7th of the next month.
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato the unit holder.
5. Exemptions & Lower TDS
- No TDSif annual income ≤ ₹5,000 per fund.
- Form 15G/15H: If unit holder’s income is below taxable limits.
- Lower TDS Certificate (Form 13): Obtain from the Assessing Officer if justified.
6. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing (Form 26Q): Penalty up to ₹1 lakh.
7. Key Changes (Budget 2025)
- Threshold Increase: From ₹5,000 to ₹10,000/year(proposed).
- Clarification on REITs/InvITs: Explicit inclusion under Section 194K.
8. Key Points
✅ 10% TDS on income from units > ₹5K/year (per fund).
✅ PAN Mandatory to avoid 20% deduction.
✅ Dividends from equity funds remain tax-free (no TDS).
✅ Quarterly Filing: Use Form 26Q.
