In Budget 2024 many changes are announced in TDS and TCS which are going to applicable from 1 October 2024 out of which this is the important change that section 194F is deleted from 1 October 2024 that means no TDS deduction on this income.
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Section 194F of the Income Tax Act, 1961, mandates the deduction of tax at source (TDS) on payments made upon the repurchase of units by a Mutual Fund or the Unit Trust of India (UTI). This section specifically addresses the tax implications of such repurchase transactions, ensuring that a TDS rate of 20% is applied to the payment made to the unit holder.
Key Provisions of Section 194F till 30 September 2024
- TDS Applicability: Section 194F applies to payments made by Mutual Funds or UTI to unit holders upon the repurchase of units.
- TDS Rate: The TDS rate under this section is set at 20%.
- Tax Deduction Responsibility: The Mutual Fund or UTI is responsible for deducting the TDS before making the payment to the unit holder.
- TDS Deduction Timeline: The tax is deducted at the time of payment to the unit holder or credit to the account of the unit holder, whichever is earlier.
Amendment from 1 October 2024
In a significant change, the Finance Act, 2024, proposes the deletion of Section 194F from the Income Tax Act, 1961. This amendment is set to take effect from 1st October 2024. The deletion of this section implies that no TDS will be required on payments made on the repurchase of units by Mutual Funds or UTI after the specified date.
Impact of the Amendment
- No TDS Deduction: Post the amendment, Mutual Funds and UTI will no longer be required to deduct TDS at the time of repurchasing units from unit holders. This is expected to streamline the process for unit holders and may potentially improve liquidity.
- Simplification of Compliance: The removal of Section 194F simplifies the tax compliance process for both Mutual Funds and unit holders. This change will reduce the administrative burden on these entities, as they will no longer need to manage TDS deductions on such transactions.
- Tax Implications for Unit Holders: Unit holders will now receive the full payment amount without any deduction of TDS at source. However, they must ensure that they accurately report such income in their tax returns, as the onus of tax payment will shift entirely to the unit holder.
- Changes for Mutual Funds and UTI: For Mutual Funds and UTI, the deletion of this section reduces the operational complexities associated with TDS compliance. They will no longer be responsible for withholding tax on repurchase payments, which may streamline their transaction processes.
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