Over 46 million equity-linked retail investors in mutual fund industry may be in for a jolt if the government goes ahead with its plans to tax dividends at a hefty 10 per cent from next fiscal year. This move is likely to see an outgo of around Rs 740 crore per annum from these investors, say experts.
However, industry lobby Amfi expects the government to heed its demand to shelve the plan and has already represented the matter to the finance ministry. The fear comes after the tax department recently notified the amended section-115BBDA of Income-Tax Act 2017, which seeks to tax dividend from MF investments into equities at 10 percent of the total income of an assessee exceeds Rs 10 lakh, including dividends distributed or paid by companies.
The equity linked MF industry is around Rs 7 trillion and companies on an average pay 1.4 per cent annually, which totals Rs 7,400 crore, which will be taxed at 10 per cent.
If the plan goes get through then it will lead to an additional tax burden of around Rs 740 crore from next April, say industry experts.
However, from the next fiscal year, this tax has been extended to all assesses, except those entities specified as domestic companies, with a view to plug a loophole whereby some trusts created by promoters are getting the exemption.
“We have already represented the matter to the finance ministry and many favourable opinions have come in from some leading CA firms, and so we hope that the proposal to tax dividend will not come through,” an Amfi official said.