Skip to content

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

Under the Income-tax Act, 1961 as applied to resident individual investors, which of the following is the tax treatment of dividend received from a mutual fund scheme?

Mutual fund dividends are taxed in the investor's hands at the investor's applicable slab rate, as income from other sources. Dividend Distribution Tax was abolished, so the fund no longer pays tax on the investor's behalf and the dividend is not exempt.

  1. AExempt in the hands of the investor
  2. BTaxed in the hands of the investor at the slab rate applicable to the investorCorrect
  3. CTaxed at a flat 10% in the hands of the investor in all cases
  4. DTaxed only when units are redeemed

Explanation

Since the abolition of Dividend Distribution Tax from FY 2020-21, dividends from mutual fund schemes are taxable in the hands of the unit holder as income from other sources at the applicable slab rate. They are not exempt, and tax does not wait for redemption. The flat 10% applies only to TDS for residents above the threshold, not as the final tax.

Did you get it right without looking?

One question tells you little. A timed set on Taxation shows your real accuracy, how long you take and where you lose marks.

Practise TaxationFree diagnostic mock

More Taxation questions