Investment | February 28, 2020
The tax implications of various
mutual funds may change entirely after the proposals of Budget 2020 are
implemented. What should you do now?
In Budget 2020, it’s been proposed to levy Tax Deduction at Source
(TDS) at 10% on the dividend income when the distribution amount to an investor
is higher than Rs 5000.
Post Budget 2020,
there are several changes that may change the mutual funds’ investing prospect.
When you look at the impact of each announcement on the mutual fund investment,
the tax implications of various mutual funds may change entirely after the
proposals of Budget 2020 are implemented. So, now you need to keep some crucial
points in mind while investing in mutual funds.
you want select the newly-proposed tax slab?
newly-introduced tax slab allows investors to choose the right investment tool
as per their financial plan, and there is no obligation to invest in the ELSS
fund to save taxes. So, now there is no need to wait for 3 years for the
lock-in period to end. Under the new tax slab, you can select the appropriate
mutual fund scheme in sync with your financial goals, risk appetite, and return
expectations. So, if you don’t want to get into the process of investing to
save the taxes and are looking for a goal-oriented investment, then mutual
fund is one of the investment products for you available in the market.
to pay TDS on dividend income?
In Budget 2020,
it’s been proposed to levy Tax Deduction at Source (TDS) at 10% on the dividend
income when the distribution amount to an investor is higher than Rs 5000.
If you don’t want
to go into the nitty-gritty of TDS payment, then you can opt for a growth
scheme while investing in mutual funds.
It would be
important to mention here that even if the TDS is deducted on dividend in a
mutual fund scheme, the option is always open to claim the TDS refund, provided
your tax liability is lower. If your tax liability is expected to be higher
than the TDS deducted on dividend, then you need not be concerned because any
way you have to pay the taxes later on.
to do as DDT taxable in the hand of investor?
existing rule, the dividend income from equity mutual funds is subject to DDT
at 11.65%, and the debt funds are subject to DDT at 29.12%, before distribution
to the shareholders. In the Budget 2020, it has benn proposed to abolish the
DDT, and now the dividend income received by the investors would be taxed as
per their applicable tax rate.
So, if you are
currently in the 30% tax bracket, then you are liable to pay tax at 30% on the
dividend income, and if you fall in the lower tax bracket of 20% or 5%, then
you have to pay tax at such applicable rate. As now dividend income will be
taxable in the hand of investors, the investors in the top of the tax brackets
will pay higher tax amounts, and investors falling in the lower tax bracket
will pay a lower tax amount.
If you don’t want
to pay tax on the dividend income, then investing in the growth option under
equity mutual fund would be a better option. The LTCG up to Rs 1 lakh on equity
fund in a financial year is exempt from taxes, and LTCG above Rs 1 lakh is
taxable at 10%. If you fall in a higher tax bracket than 10% or 15%, then
paying the LTCG tax at 10% rate or STCG tax at 15%, respectively, will still be
more beneficial for you.
You may also plan to opt for the SWP option for regular income with growth
option, instead of regular dividend payout option to avoid tax on dividend
It’s time to plan
your investment wisely in sync with your financial goals. If you are into any
dilemma or have any confusion related to your investments, then don’t hesitate
to consult your investment advisor.
Note: Article originally appeared in financialexpress.com. Link to the source article is as mentioned below: