MUTUAL FUND INVESTMENTS: TDS AND ACHIEVING FINANCIAL GOALS

 

mutual fund investment

Mutual funds have experienced a meteoric rise in popularity over the past ten years, making them one of the most popular investment options in India. In order to reach their financial objectives, investors are more eager to learn about the many investment opportunities. Aside from a range of plans with various risk-return combinations, mutual funds are simple to invest in and offer tax efficiency 

The majority of investors are familiar with the many types of mutual funds that are offered on the market and how to invest in them, but few pay attention to the tax implications of mutual fund returns. Investors frequently wonder why the net in-hand returns they receive are lower than what they anticipated, particularly when it comes to TDS on mutual fund investments.

Mutual fund investments return

The two major methods that investors in mutual funds might expect returns are dividend income and capital gains. Dividends are sums of any profits that the corporation chooses to distribute. Companies may pay dividends to shareholders when they have extra cash to spare. The amount of the dividend is determined by the number of mutual fund units that investors own.

An investor makes a capital gain when they sell their mutual fund units. If the revenues from the sale exceed the investment, there has been a capital gain.  A gain from a mutual fund investment is experienced if the price of the units is higher at the time of sale compared to the price at the time of investment.

Both capital gains and dividend income are subject to taxation for investors. Do investors need to pay taxes on them, after receiving them or are they subject to TDS? Everything a potential investor needs to know about TDS, or tax withheld at the source, is provided below.

1. TDS on dividends from mutual funds

TDS at 10% is applied to dividend income from mutual fund assets. For dividend income over Rs. 5,000, this applies. Any dividend income received by an investor would now be subject to individual tax slabs because Mutual Fund Companies are no longer required to deduct dividend distribution tax or DDT.

2. TDS on dividend reinvestment, distribution, and transfer

All three options-dividend payout, dividend reinvestment, and dividend transfer—are subject to TDS on dividend income from mutual fund assets. Therefore, regardless of what they decide to do with their dividend money, investors cannot escape tax.

3. No TDS on capital gains for domestic investors

Mutual fund investors may earn either short-term or long-term capital gains on their investments. These are, however, not subject to TDS since they are taxable in the hands of the investors.

4. Form 15G/15H

Investors who want to request that the paying entity not deduct TDS on their mutual fund gains can do so by submitting Forms 15G and 15H. These are self-declaration forms to be submitted to the bank to avoid TDS on interest income if the investor’s income is within the basic exemption limit. t is important to furnish a PAN along with these forms. Both of these forms can be used only by residents of the country.

Form 15G is for resident individuals, HUFs, or trusts within the age limit of 60 years.

Form 15H is for a resident individual over the age of 60.

Similarly to this, a senior who estimates their annual tax liability to be zero might submit Form 15H to the organization disbursing the dividend.

The mutual fund notifies the shareholder of the dividend declaration on their registered mail ID and requests that they file Form 15G or Form 15H in order to receive dividend income free of TDS.

Conclusion

Investors are thought to be better off if they choose capital gains through growth plans over the dividend option when it comes to TDS on mutual fund investments. Investors have the option of choosing between growth and dividend options based on their investment goals. When AMC pays you dividends, the benefit of compounding is lost, thus customers who wish to grow their money over the long term often select the growth option.

Location: Mumbai, Maharashtra, India

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