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

Under the Income-tax Act, a resident individual receives dividend from a mutual fund scheme. How is this dividend taxed in the hands of the unit holder?

Mutual fund dividend (IDCW) is taxed in the unit holder's hands at the applicable slab rate under income from other sources, because Dividend Distribution Tax was removed from FY 2020-21. It is neither exempt nor treated as capital gains.

  1. AExempt from tax in the hands of the unit holder
  2. BTaxed in the hands of the unit holder at the applicable slab rate as income from other sourcesCorrect
  3. CTaxed at a flat 10% only if it exceeds Rs 5,000
  4. DTaxed as long-term capital gain

Explanation

Since the abolition of Dividend Distribution Tax from FY 2020-21, dividends (IDCW) from mutual funds are taxable in the hands of the investor as income from other sources at slab rates. They are not exempt and are not capital gains.

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