Section 194K : TDS on Dividend from Mutual Funds

What is Section 194K?

Under Budget 2020 applicable from 1st April 2020 i.e. FY 2020-21, Dividend Distribution Tax – DDT was abolished. As a result, the dividend received on equity shares and mutual funds which were earlier exempt under Section 10(35) of the Income Tax Act is now taxable at slab rates. It is taxable in the hands of the shareholder. Since the income would be taxable in the hands of the shareholder, TDS would be applicable. As a result, the Finance Minister introduced a new Section 194K to deduct TDS on Dividend from Mutual Funds.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

The person paying dividends on mutual funds should deduct TDS u/s 194K. The deduction is at 10% on the number of dividends, only if a resident shareholder’s total dividend in a financial year exceeds INR 5,000. Section 194K is applicable from 1st April 2020 i.e. FY 2020-21 onwards.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

Section 194K – TDS on Dividend from Mutual Funds

  • Deductor
    • Mutual Fund distributing dividends to the investors of equity mutual funds should deduct TDS on such dividends. The deductor must deposit the TDS and file the TDS Return on TRACES.
  • Deductee
    • Shareholder resident in India earning dividend income on equity mutual funds will receive the amount after TDS under Section 194K. Shareholder resident in India earning dividend income on equity shares will receive the amount after TDS under Section 194. NRI investors/shareholders, earning dividend income will receive the amount after deduction of TDS under Section 195.
  • Nature of Payment 
    • Sec 194K covers Payment of Dividend on Equity Mutual Funds to a resident shareholder exceeding INR 5000 in a financial year.
  • Time of Payment
    • TDS shall be deducted at the time of credit of income to payee account or at the time of payment, whichever is earlier. If the payee of the amount credits the amount to be paid to “suspense account” or any other account, it is considered as ‘deemed payment’ and the payer must deduct TDS on such credit.
  • Rate
    • Deductor should deduct TDS u/s 194K at the rate of 10% if the dividend amount exceeds INR 5000. If the payee does not provide the PAN, TDS shall be deducted at the rate of 20%
  • TDS Certificate
    • Deductor shall issue Form 16A to the deductee as the Tax Credit Certificate of the amount deducted as TDS. The Deductor can download Form 16A from the account on TRACES. Using Form 16A, the deductee can claim credit of the tax deducted while filing Income Tax Return.
  • TDS Return
    • After depositing TDS with the income tax department, the deductor should file Form 26Q on TRACES. The details of the dividend payment are part of this report. The deductor, after filing the report, should provide Form 16A to the deductee.
TDS Return (26Q) for Non-Salary Payments (Quarterly)
CA Assisted TDS return filing for employers, firms and companies making payment of Professional fees, Rent, Contracts, Commission, etc.
[Rated 4.8 stars by customers like you]
TDS Return (26Q) for Non-Salary Payments (Quarterly)
CA Assisted TDS return filing for employers, firms and companies making payment of Professional fees, Rent, Contracts, Commission, etc.
[Rated 4.8 stars by customers like you]

What is the meaning of ‘Income’ under Section 194K?

As per the Income Tax Act, ‘Income’ includes dividend paid on units of mutual funds specified under 10(23D) of Income Tax Act, units of mutual funds from a specified company or units of mutual funds from the administrator of the specified undertaking

There was confusion about whether the TDS under Section 194K on “Income from Mutual Funds” would include only dividends; or also include capital gains on the sale of MFs. On 4th Feb 2020, CBDT issued a clarification on this issue.

CBDT Clarification TDS at 10% should be deducted on Dividend Income only and not on Income from Capital Gains on the sale of Mutual Funds. Here is the official clarification from CBDT.

Import Your Trades
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Import Your Trades

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

FAQs

Are Capital Gains from the sale of Mutual Funds subject to TDS under Sec 194K ?

Sec 194K mentions TDS on ‘Income’ from Mutual Funds. There was confusion about whether capital gains income on the sale of MFs should be subject to TDS u/e 194K. However, the CBDT issued an official clarification on 02nd February 2020. Therefore, TDS needs to deducted at 10% on Dividend Income only. Additionally, it is not applicable for Income from Capital Gains on the sale of Mutual Funds.

Is TDS required to be deducted on dividend paid to NRI shareholder ?

Section 195 applies to the dividend paid to NRI investors/shareholders, as per provisions of the Income Tax Act. Hence, TDS needs to be deducted on the dividend at 20% on equity shares and equity mutual funds. Therefore, TDS has to be deducted at 10% as per Sec 194 and Sec 194K for an NRI shareholder.

How to fill Form 12BB?

All the salaried taxpayers need to fill Form 12BB. It is supposed to be submitted at the beginning of every financial year by the employee to his/ her employer for the correct deduction of TDS. It discloses all their tax-saving investments of that particular financial year.

Steps to Fill Form 12BB

Time needed: 3 minutes.

  1. Download Sample Form 12BB

    You can download the sample Form 12BB from the Income Tax Department website.

  2. Add Personal Details

    Fill Personal Details i.e, Add your Name, Address, and PAN details. Also, mention the current financial year i.e 2020-2021.

  3. Add house rent allowance Details

    If you are incurring any rental expenses for your work then that can be deducted under HRA.

  4. Add LTA Details

    Add details of LTA if any.

  5. Enter Details regarding Interest on Loan for Borrowings

    If you are paying any Interest on EMI of home loans in this particular Financial year it can avail you benefit up to 2,00,000 for self-occupied property and no limit on rented property.

  6. Add Chapter VI-A Deductions

    Add details of tax deductable investments and deductions under 80C, 80CCD (1B), 80D, 80DD, 80E, 80G etc.

Who needs to Fill Form 12BB?

Effective from 1st June 2016, Every salaried taxpayer has to submit Form 12BB. You will also have to submit proofs/evidence to support your investments. It can help you reduce your taxable income and it also helps your employer to deduct correct TDS from your salary. 

Yet in case… If you haven’t filed your Form 12BB your employer might have deducted excess TDS from your salary. But, you can claim your excess TDS while filing your Income Tax returns.

FAQs

What is Form 12BB?

Salaried employees have to provide certain information to their employer in order to avail tax benefits while filing for Income Tax Return. There was no particular standard format before to disclose investments. But, from June 2016, Introduction of standard form 12BB has made lives easier.

What is the purpose of form 12BB?

Form 12BB serves the following two purposes:
1. Helps employer deduct correct TDS of an employee,
2. Helps employee determine his tax liability and make tax savings investments accordingly.

Do I have to submit the Form 12BB to Income tax department?

No, the form is not to be submitted to the Income-tax department. It is to be submitted to the employer.

How to Download TDS Return Preparation Utility (RPU)?

The deductor needs to file TDS/TCS Returns on a quarterly basis. The Income Tax Department has notified file formats for the preparation of TDS and TCS statements/returns. Hence, the NSDL e-Gov has developed a software called an e-TDS/TCS Return Preparation Utility (RPU) to facilitate the preparation of e-TDS/TCS returns.

Steps to Download Return Preparation Utility

  1. Visit the TIN-NSDL portal.

    Click on Services > e-TDS/e-TCS option from the dashboard.

  2. Click on e-TDS/e-TCS RPU.

    From the e-TDS/e-TCS option located on the left side.

  3. Click on the “Download RPU Version 3.0” link.

    The versions are modified from time to time. So make sure to have latest version of RPU.

  4. Extract the files

    The file downloaded is a zipped file.

  5. Open the “TDS_RPU_3.0.jar” which is the executable jar file.

    From the list of files in the folder.

  6. Click on the “OK” option to access the utility.

    Start filling the details to prepare TDS Return/Statement.

FAQs

1. Is there any software available for the preparation of e-TDS/e-TCS return?

NSDL e-Gov has made available a freely downloadable Return Preparation Utility for the preparation of e-TDS/TCS statements. Additionally, you can develop your own software for this purpose or you may acquire software from various third-party vendors.

2. What is the current RPU version for the preparation of e-TDS/e-TCS statements?

Return Preparation Utility (RPU) version 3.0 is to be used for the preparation of e-TDS/TCS regular and correction statements pertaining to Financial Year 2007-08 onwards.

3. What is TDS Return Form 26Q?

Form 26Q is for Non-Salary Deductions. Form 26Q is used to file TDS details of payments other than Salary. The form also mentions the total amount that is paid during the quarter and the TDS amount that has been deducted.

Generate TDS File Using RPU

The deductor/collector of TDS/TCS can file Return using Return Preparation Utility (RPU). The users can Download the Return Preparation Utility (RPU) from the TIN NSDL. Once the installation process is complete, the users can prepare their TDS return file using the utility. TDS Return can be filed in following two ways:

  1. Through TIN FC Center,
  2. Through Income Tax e-Filing Portal.

Steps to Prepare TDS File using Return Preparation Utility (RPU)

  1. Open the executable JAR file.

    Once the RPU is downloaded and installed from TIN NSDL.

  2. Click on the “Ok” option to move forward.

    A pop-up message appears on the screen.

  3. Select TDS Return Form Type based on Nature of Payment

    The employer needs to select Form 24Q for filing TDS on salary payments.

  4. Select the Type of Return i.e, Regular or Correction

    Regular return is the original TDS Return and Correction is the revised TDS Return.

  5. Fill in the required details in the Form

    Enter basic details like TAN, FY, Name and Address of Deductor and Responsible Person.

  6. Fill in the Challan details.

    Challan details like BSR Code, Challan Number, Date of Deposit, TDS Amount, Section, etc.

  7. Clicking on the “Add Rows” option to add more challans.

    This will allow you to add all the challan deposited with the Income Tax Department.

  8. Click on the “Annexure Deductee Details” section.

    Add details of deduction/ payment here like PAN, Name, Payment Amount, Section, TDS Amount, etc.

  9. Click on the “Create File” option.

    If there are any errors then same will be shown. And needs to be fixed before filing TDS Return.

Once the file is created from RPU, one needs to add this file and Challan Inquiry File into FVU of TDS/TCS Return and create an FVU file. And this FVU file will be used to file TDS/TCS Return.

FAQs

1. Can we file an e-TDS return without TAN?

Quoting of TAN is mandatory in TDS and TCS returns, whether filed in paper or electronic format. The returns, whether in paper or electronic format, will not be received in case TAN is not quoted.

2. What is Form 27A?

The Form 27A is a summary of e-TDS/TCS returns which contains control totals of “Amount Paid” and “Income Tax Deducted at Source”. The control totals of Amount Paid and Income Tax Deducted at Source mentioned on Form No. 27A should match with the corresponding control totals in e-TDS/TCS return. It gets generated from FVU while filing TDS Return.

3. What is the Challan Serial Number given by the bank?

Bank Challan Number is a receipt number given by the bank branch where TDS is deposited. A separate receipt number is given for each challan deposited. You are required to mention this challan number in the e-TDS/TCS return.

4. What is the Bank Branch Code and where do I get it from?

The Reserve Bank of India has allotted a unique seven-digit code to each bank branch. You are required to mention the code of the bank branch where TDS is deposited in the e-TDS/TCS return. You can get this code from the bank branch where the TDS amount is deposited.

5. Can I file Form 26Q separately for contractors, professionals, interest, etc.?

No. A single Form 26Q with separate annexures corresponding to each challan payment for each type of payment has to be filed for all payments made to residents.

Application for Duplicate Provisional Receipt Number (PRN)

A 15-digit Provisional Receipt Number (PRN) gets generated once the e-TDS or e-TCS return is filed. The deductor can file TDS/TCS Return either on Income Tax E-filing Portal or with TIN FC. PRN is nothing but an acknowledgment of e-TDS/ e-TCS Return filed. Furthermore, there are two different ways to gain access to the Provisional Receipt. They are as follows:

  1. Download the Provisional Receipt from the Income Tax e-Filing portal
  2. File a request letter to the NSDL e-Governance to obtain a duplicate Provisional Receipt
The Provisional Receipt Number can be accessed from the Income Tax e-Filing Portal only if the TDS return is filed from the Income Tax e-Filing portal.
Tip
The Provisional Receipt Number can be accessed from the Income Tax e-Filing Portal only if the TDS return is filed from the Income Tax e-Filing portal.

Steps to Download Provisional Receipt Number from the Income Tax e-Filing Portal

  1. Visit the Income Tax e-Filing Portal and Log into your Account.

    Select the TDS > View Filed TDS option from the dashboard.

  2. Fill in TAN, Financial Year, Form Name, Quarter, Upload Type

    Click on View Details

  3. Click on the Token Number.

    Details of Return along with PRN will appear

  4. Click on the option to download the Provisional Receipt.

    It is password protected and password is TAN in lower case.

Steps to Apply for Duplicate Provisional Receipt on TIN NSDL

  • Step 1: Visit the TIN-NSDL portal.
  • Step 2: Click on the Services > Form 24G from the dashboard.
  • Step 3: Click on the “Procedure to obtain a duplicate copy of the “Provisional Receipt Number” option under the Form 24G section.

Hence, the address where the request letter should be forwarded to is mentioned.

Therefore, the format of the letter to be submitted is given below.

Download Letter Template
Download Letter Template for Gaining Access to the Duplicate Provisional Receipt
Download
Download Letter Template
Download Letter Template for Gaining Access to the Duplicate Provisional Receipt
Download

FAQs

What is the importance of the Copy of the Provisional Receipt Number?

It is required under the following 2 scenarios:
– To prepare Correction statement: While preparing correction statement, the Original Provisional Receipt Number of the last statement is required.
– Submission of Correction Form statement through TIN FC: While submitting correction Form statement through TIN FC, the copy of Original Provisional Receipt needs to be mandatorily submitted along with the Form statistic report.

How should I get the duplicate copy of Original Provisional Receipt or Provisional Receipt Number (regular or correction)?

NSDL e-Gov shall email the duplicate copy of Original Provisional Receipt or Provisional Receipt Number (regular or correction) on the email ID as mentioned in the last Form 24G statement accepted at TIN Central System.

What is the password to open PRN of TDS Return filed on Income Tax E-filing site?

The password to open PRN is TAN of the deductor in Lower Case Format. The Receipt will open in a new tab and the deductor can download the same for future reference.