Budget 2025: TDS limit on Dividend Income from Mutual Funds Increased to 10,000

Top Stories Budget 2025: TDS limit on Dividend Income from Mutual Funds Increased to 10,000 The Union Budget 2025 has brought relief to mutual fund investors by doubling the TDS limit on dividend income to ₹10,000.

This change is expected to benefit small investors By Nandan GK – On February 2, 2025 10:54 am – 2 mins read Finance Minister Nirmala Sitharaman presented the Union Budget 2025 on February 1st, 2025, at 11:00 AM before the Parliament, which included a proposal to raise the TDS limit on dividend income from mutual funds from ₹5,000 to ₹10,000 in the Union Budget 2025-26, benefiting mutual fund investors. Section 194K of the Income Tax Act, 1961: The government added the section to the act during the 2020 budget. Section 194K demands a 10% TDS deduction on dividend income from mutual funds. This indicates that the entity paying the income will deduct TDS from the income earned by the mutual fund scheme investor. As a result, the investor will receive their income minus TDS.

However, there’s a provision that waives this TDS if the total income from these units paid or credited to the investor during the financial year doesn’t exceed a certain threshold. Currently the threshold amount is ₹ 5000 which implies that if the mutual fund dividend income exceeds ₹ 5000, 10% TDS will be deduced. The latest amendment which comes as part of TDS threshold rationalization proposes to increase this limit to ₹ 10,000. Effectively, this means that if the total annual income from mutual fund units is ₹ 10,000 or less, no TDS will be deducted from your payouts starting from April 1, 2025.

Illustration: Mr. B receives a total dividend income of ₹9,000 during the financial year. Under the old TDS rules (₹5,000 limit): TDS would be deducted at 10% on the entire amount of ₹9,000, which comes to ₹900. Mr. B would receive ₹8,100 in his account. Under the new TDS rules (₹10,000 limit): No TDS would be deducted since the dividend income is below the ₹10,000 threshold. Mr. B would receive the entire ₹9,000 in his account. Benefits: Increased Liquidity: The most immediate benefit will be increased liquidity for small investors. With no TDS deducted on smaller payouts, investors will have more cash in hand. Simplified Tax Filing: A lower TDS burden translates to a simpler tax filing process. Encouraging Small Investments: This move could potentially encourage more small investors to participate in the mutual fund market, as it reduces the immediate tax burden and simplifies the overall investment experience. Boost to the Mutual Fund Industry: The doubling of the TDS threshold is also expected to provide a boost to the mutual fund industry as a whole.

With a more favorable tax environment, mutual funds can become a more attractive investment option for retail investors, leading to increased inflows into the industry. This, in turn, can promote economic growth, financial stability, and job creation. Conclusion The Union Budget 2025’s proposal to increase the TDS limit on dividend income from mutual funds to ₹10,000 is a significant move that benefits stock market investors, particularly small investors. This change, effective April 1, 2025, will increase liquidity, simplify tax filing, and encourage small investments in the mutual fund market.

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