Tax Reckoner for Mutual Funds

Taxability of IDCW upto FY 2019-20

The mutual fund company was required to pay IDCW Distribution Tax (DDT) under section 115R of the Act on the IDCW declared, distributed or paid to its unitholders at the rates applicable including surcharge and cess based on the type of Schemes. Also, the said IDCW were not subject to tax in the hands of the unitholders as per section 10(35) of the Act as any income received from a debt mutual fund scheme or an equity mutual fund scheme was totally exempt from tax.

Taxability of IDCW from FY 2020-21 onwards

W.e.f. 01-04-2020, FA 2020 has abolished the DDT charged under section 115R of the Act on the IDCW paid by the Mutual Fund and transferred the tax burden completely in the hands of the recipient. Due to which the section 10(35) of the Act has also been abolished. Now the IDCW is taxable in the hands of the unitholders at normal tax slab rates subject to the following withholding of taxation by Mutual Fund:

Certain deductions available under Chapter VI-A of the Act (Equity Linked Savings Schemes)

Equity Linked Savings Schemes (ELSS) are schemes formulated under the Equity Linked Savings Scheme (ELSS), 2005, issued by the Central Government.
Accordingly, any investment made by an assessee in the ELSS of the Fund up to a sum of ?1,50,000 in a financial year would qualify for deduction under
Section 80C of the Act.
An “assessee” as per ELSS 2005 means:—

1. An individual; or
2. A hindu undivided family; or
3. An association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and Union Territories of Dadra and Nagar Haveli and Daman and Diu by whom, or on whose behalf, investment is made;

ELSS investment is subject to lock-in for 3 years.

As per the present tax laws, eligible investors (individual/HUF) are entitled to deduction from their gross income of the amount invested in Equity Linked Saving Scheme (ELSS) up to ? 1.5 lakhs (along with other prescribed investments) under section 80C of the Income Tax Act, 1961. The information set out above is included for general information purposes only and does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws as certified by the mutual funds consultant. Any action taken by you on the basis of the information contained herein is your responsibility alone. Axis Mutual Fund will not be liable in any manner for the consequences of such action taken by you. The information contained herein is not intended as an offer or solicitation for the purchase and sales of any schemes of Axis Mutual Fund.

Statutory Details : Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to ? 1 Lakh). Trustee : Axis Mutual Fund Trustee Ltd. Investment Manager : Axis Asset Management Co. Ltd. (The AMC). Risk Factors : Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.