Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Sections 115R to 115T]- Special Provisions relating to Tax on Distributed Income to Unit Holders

[Sections 115R to 115T]- Special Provisions relating to Tax on Distributed Income to Unit Holders
[Sections 115R to 115T]- Special Provisions relating to Tax on Distributed Income to Unit Holders

1.  [Section 115R (2)]- Tax on Income Distributed to Unit Holders by the Specified Company or a Mutual Fund :

Any amount of income distributed by: (I) a specified company, or (ii) a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the following rates:

1. (a) Where the income is distributed to any person being an individual or a HUF by a money market mutual fund or a liquid fund 25% + SC + H&EC
(b) Where the income is distributed to any other person by a money market mutual fund or liquid fund. 30% + SC + H&EC
2. Where the income is distributed by a fund other than a money market mutual fund or a liquid fund and such income is distributed to—
(a)  Individual or HUF 25% + SC + H&EC
(b)  Any person other than individual or HUF 30% + SC + H&EC
3. Where the income is distributed by an equity oriented fund to any person 10% + SC + H&EC

Provided that where any income is distributed by a mutual fund under an infrastructure debt fund scheme to a non-resident (not being a company) or a foreign company, the mutual fund shall be liable to pay additional income-tax at the rate of 5% on income so distributed (first proviso):

See also  [Section 142A]- Estimation of Asset, Property or Investment by Valuation Officer in certain Cases

Provided further that] nothing contained in this sub-section shall apply in respect of any income distributed, by the Administrator of the specified undertaking, to the unit holders; (second proviso)

Amendment made by the Finance (No.2) Act, 2019 [W.e.f. 1.9.2019]

Third proviso to section 115-R(2) has been inserted so as to provide that no additional income-tax shall be chargeable in respect of any amount of income distributed, on or after 1.9.2019, by a Specified Mutual Fund out of its income derived from transactions made on a recognised stock exchange located in any International Financial Services Centre (IFSC)  and where the consideration for such transaction is paid or payable in convertible foreign exchange:

‘Specified Mutual Fund” means a Mutual Fund specified under section 10(23D)—

(a)           located in any International Financial Services Centre;

(b)          of which all the units are held by non-residents.

Income Distribution Tax to be Grossed Up [Section 115R (2A)]

For the purposes of determining the tax on distributed income payable in accordance with the section 115R, any amount by way of income referred to in section 115R, as reduced by the amount referred to in section 115-R (2A) [referred to as net distributed income], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in section 115-R, be equal to the net distributed income.

The effective rate of additional tax, shall be as under:

1. (a)  Where the income is distributed to any person being an individual or a HLJF by a money market mutual fund or a liquid fund 33.33% + 12% SC + 4% H&EC = 38.82%
(b)  Where the income is distributed to any other person by a money market mutual fund or liquid fund. 42.857% + 12% SC + 4% H&EC = 49.92%
(c)  Income distributed to any person by an equity oriented fund 11.111 % + 12% SC + 4% H&EC = 12.942%
2. Where the income is distributed by a fund other than a money market mutual fund or a liquid fund and such income is distributed to—
(a) Individual or HUF 33.33% + 12% SC + 4% H&EC = 38.82%
(b) Any person other than individual or HUF 42.857% + 12% SC + 4%  H&EC = 49.92%
(c) if recipient is non-resident/foreign company (under infrastructure debt fund) 5.26% + 12% SC + 4% H&EC = 6.127%
See also  Special Provisions relating to Tax on Distributed Profits of Domestic Companies

2.   Provisions of Section 115R shall not apply in respect of any income distributed [Second Proviso to Section 115R(2)]

No tax shall be payable in respect of any income distributed—

(a)           by the Administrator of the specified undertaking, to the unit holders; or

(b)          to a unit holder of an equity oriented fund (whether open ended or closes ended) in respect of any distribution made from such fund. (Omitted by the Finance Act, 2018, w.e.f. 1.4.2018)

3.   [Section 10(35)]- Exemption of Income in the hands of Unit Holder:

The following income shall be exempt in the hands of unit-holders.

(a)           income received in respect of the units of a Mutual Fund specified under section 10(23D); or

(b)          income received in respect of units from the Administrator of the specified undertaking; or

(c)           income received in respect of units from the specified company.

Amendment made by the Finance Act, 2020

The provisions of section 115R shall not be applicable w.e.f. 1.4.2020, as income from unit shall now be taxable in the hands of the recipient.

Hence, section 10(35) shall also not apply to any income distributed by way of profit received by the unit holder on or after 1.4.2020.

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