Avoid TDS on MF dividends by submitting these forms (2024)

Investors in fixed-income instruments may be familiar with the Form 15G or 15H. These forms are widely used by individuals to avoid the Tax Deducted at Source (TDS), if their liability is otherwise expected to be nil. As dividends are taxed in the hands of investors now, the mutual fund investors also have the option of submitting the relevant form to avoid the TDS.

Importance of submitting the forms

Till March 31, 2020, mutual funds used to collect Dividend Distribution Tax (DDT) on mutual funds and dividends were tax-free in the hands of investors. For equity schemes, it was 11.64 percent and for non-equity funds, it was 29.12 percent for individual investors. The DDT so collected was paid to the government by mutual funds. However, the Finance Act 2020 changed the rules. DDT was abolished and the dividends were made taxable in the hands of the investors as per their respective slab rates. It also prescribed rules for TDS.

How much tax would mutual funds collect?

As per the new norm, TDS at the rate of 7.5 percent has been prescribed for the dividend receipts in excess of Rs 5000 – applicable at the level of the permanent account number (PAN) of the investor.

When is the TDS provision applicable?

TDS is applicable to all dividend options – be it the dividend pay-out or dividend reinvestment or even dividend transfer plans. All equity and non-equity schemes declaring dividends will be subjected to the TDS rule.

How do I avoid TDS?

You can use forms 15G and 15H. If you expect your income tax liability, after factoring in all your income for the financial year, to be nil, you can submit the applicable forms. Form 15G can be used by a resident individual below 60 years of age. For resident individuals above 60, form 15H is to be used. It is noteworthy non-resident Indians cannot use these forms.

How do I submit these forms?

You can avail the forms from the websites of mutual funds and registrar and transfer agents (RTA), and at their branch offices. You can submit the signed forms at their offices. Alternatively, you can submit the form digitally through your RTA's website, clearly specifying the details using the OTP (one-time password) method in a hassle-free manner.

The form submitted will be valid for the financial year. For each financial year, you must submit the forms afresh.

Does submission of forms end the tax liability?

However, if you file a false declaration, it is a punishable offence under Section 277 of the Act. In cases where the amount of tax evaded exceeds Rs 25,000 the punishment would be rigorous imprisonment for a term which shall be for a minimum six months, extendable to 7 years and a fine may be levied. For any other case, there may be rigorous imprisonment for a term which shall be for minimum of three months but may extend to two years and with fine,” points out an associate partner of one of India's largest law firms.

If you haven't submitted these forms and the fund house has deducted tax at source, then do not lose heart, if your net income for the year does not entail tax liability. You can file your income tax return and claim a refund.

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