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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation

A resident individual's total income, including a dividend of Rs 20,000 received from a mutual fund scheme, falls in the 30% slab. Under the current rules for dividends from mutual fund schemes, how is this dividend taxed in the investor's hands?

The dividend is taxed in the investor's hands at the applicable slab rate, which is 30% here, under the head income from other sources. Dividend Distribution Tax was abolished, so the fund does not pay tax on it and the investor has no exemption.

  1. AExempt up to Rs 10,000 and taxed at 10% above that
  2. BTaxed at slab rate as 'Income from other sources'Correct
  3. CTaxed at a flat 20% as capital gains
  4. DFully exempt because the fund has already paid tax

Explanation

Since the abolition of Dividend Distribution Tax, mutual fund dividends are taxable in the investor's hands at the applicable slab rate under income from other sources. The fund no longer pays DDT, so the exemption option is wrong. Dividend is not treated as capital gains.

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