NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation
On payments of IDCW to a resident investor, a mutual fund deducts tax at source (TDS) only if the amount paid exceeds a threshold in a financial year. What is the purpose of this TDS?
TDS on IDCW is an advance collection of the investor's income tax. The deducted amount is credited against the total tax liability when the investor files the return, with any excess refunded. It is neither a final tax, an AMC fee, nor a penalty.
- AIt is a final tax that closes the investor's liability
- BIt is an advance collection of tax that the investor can adjust against total tax liability when filing the returnCorrect
- CIt is a fee retained by the AMC
- DIt is a penalty for not furnishing PAN
Explanation
TDS is an advance collection of income tax, not a final liability or a fee. The investor claims credit for it while filing the return and pays any balance or gets a refund. It is not a penalty related to PAN.
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