Understanding Section 194K of Income Tax Act 2020-21: A Comprehensive Guide
Section 194K is a new provision introduced in the Income Tax Act, 1961, by the Finance Act, 2020. This section deals with the deduction of tax at source (TDS) on income earned from units of mutual funds.
In this blog, we will discuss the various aspects of Section 194K, including its applicability, rate of TDS, exemptions, and other relevant information.
What is Section 194K of the Income Tax Act 2020-21? Section 194K applies to any person responsible for paying any income to a resident individual or Hindu Undivided Family (HUF) in respect of units of mutual funds. The section mandates the deduction of TDS at the time of payment of such income.
Applicability of Section 194K The section applies to all types of mutual funds, including equity-oriented mutual funds, debt mutual funds, and hybrid mutual funds. However, the TDS provision applies only to those mutual funds where the fund house declares a dividend to the unitholders.
Rate of TDS The rate of TDS under Section 194K is 10% on the income distributed by the mutual fund to the unitholders. The tax is to be deducted at the time of credit of income to the unitholders’ account or at the time of payment, whichever is earlier.
Exemptions under Section 194K Section 194K provides certain exemptions from TDS. The following are the exemptions available under the section:
- Exemption for individuals and HUFs with no tax liability: No TDS is required to be deducted if the unitholder is an individual or HUF with no tax liability.
- Exemption for dividends up to Rs. 5,000: No TDS is required to be deducted on dividends up to Rs. 5,000 paid by the mutual fund to the unitholders.
- Exemption for income paid to specified entities: No TDS is required to be deducted on income paid to certain specified entities, such as the Life Insurance Corporation of India, the Unit Trust of India, and specified mutual funds.
Compliance Requirements under Section 194K The following are the compliance requirements under Section 194K:
- Filing of TDS return: The person responsible for deducting TDS under Section 194K is required to file a TDS return in Form 26Q within the prescribed due date.
- Issuance of TDS certificate: The person responsible for deducting TDS under Section 194K is required to issue a TDS certificate to the unitholders in Form 16A within the prescribed due date.
Conclusion In conclusion, Section 194K is a new provision introduced in the Income Tax Act, 1961, that mandates the deduction of TDS on income earned from units of mutual funds. The section applies to all types of mutual funds, where the fund house declares a dividend to the unitholders. The rate of TDS is 10%, and certain exemptions are available under the section. Compliance requirements under the section include filing of TDS return and issuance of TDS certificate to the unitholders. It is essential for mutual fund investors to be aware of the provisions of Section 194K to avoid any non-compliance issues.
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Frequently Asked Questions (FAQs)
Q: What is Section 194K of the Income Tax Act 2020-21? A: Section 194K is a new provision introduced in the Income Tax Act, 1961, by the Finance Act, 2020. This section deals with the deduction of tax at source (TDS) on income earned from units of mutual funds.
Q: Who is responsible for deducting TDS under Section 194K? A: Any person responsible for paying any income to a resident individual or Hindu Undivided Family (HUF) in respect of units of mutual funds is responsible for deducting TDS under Section 194K.
Q: What is the rate of TDS under Section 194K? A: The rate of TDS under Section 194K is 10% on the income distributed by the mutual fund to the unitholders.
Q: What are the exemptions available under Section 194K? A: The exemptions available under Section 194K include exemption for individuals and HUFs with no tax liability, exemption for dividends up to Rs. 5,000, and exemption for income paid to specified entities.
Q: What is the compliance requirement under Section 194K? A: The compliance requirements under Section 194K include filing of TDS return and issuance of TDS certificate to the unitholders.
Q: Which mutual funds are covered under Section 194K? A: Section 194K applies to all types of mutual funds, including equity-oriented mutual funds, debt mutual funds, and hybrid mutual funds. However, the TDS provision applies only to those mutual funds where the fund house declares a dividend to the unitholders.
Q: Is TDS required to be deducted on capital gains earned from mutual funds? A: No, TDS is not required to be deducted on capital gains earned from mutual funds. Section 194K applies only to income earned from units of mutual funds, and capital gains are not considered as income under this section.
Q: What is the due date for filing TDS return under Section 194K? A: The due date for filing TDS return under Section 194K is the 31st of July, October, January, and May, respectively, for each quarter of the financial year.
