SECTION 194K TDS ON INCOME FROM MUTUAL FUND UNITS

TDS U/S 194K: TDS ON INCOME FROM MUTUAL FUND UNITS

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194K of Income Tax Act?

Section 194K of Income Tax Act, 1961 mandates that TDS to be deducted by the payer while making payment related to income from unit trust of India or mutual fund units.

3. When is TDS to be deducted under Section 194K?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194K?

Any person making payments related to Income from Unit trust of India (UTI) or Mutual fund units to a resident person during the financial year if the amount exceeds Rs. 5,000.

NOTE: -

This section i.e. TDS on payments related to Income from Unit trust of India (UTI) or Mutual fund units is not applicable while making such payments to non-resident.

Example: -

Mr. Kunal holding 10,000 units of HDFC mutual funds, during the F.Y 2024-25 HDFC mutual fund announce income of 10 per unit to its unit holders. Discuss the TDS implications?

As per Section 194K a mutual fund unit has to deduct TDS if during the Financial Year income form units given to a resident person is above Rs. 5,000. In the give case Mr. Kunal has earned income of Rs. 1,00,000 (10,000 units * 10 per unit), so the HDFC mutual funds are required to deduct TDS @ 10% i.e. 10,000 before distributing the income to Mr. Kunal.

5. Rate of TDS under Section 194K?

The TDS rate under Section 194K is 10% and in case the PAN of the person is not provided TDS rate will be increased to 20% form 10%.

6. Exemption under Section 194K?

No TDS if: -

• The amount is upto Rs. 5,000 during the financial year.

7. Time limit for deposit of TDS under Section 194K?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194K?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194K?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

FREQUENTLY ASKED QUESTIONS?

Q. Whether TDS is required to be deducted under 194K if payment is made to non-resident?

A. NO, this section only covers payment to resident person only. So, payment made to non- resident is not covered under 194K.

Q. Is there any threshold for TDS u/s 194K?

A. Yes, the threshold limit is Rs. 5,000, but in case of payment of remuneration to directors there is no threshold limit.

Q. Who deducts TDS under Section 194K?

A. The Asset Management Company (AMC) or the funds are liable to deduct TDS. Following are the types of entities that are required to deduct TDS.

                Mutual Fund as per Section 10(23D)

                Units of a specified company.

                Units from the administrator of specified undertakings.

Q. What is an Asset Management Company?

A. An Asset Management Company (AMC) is an company that collects funds from investors and invest them in various investment channels such as equities, debt, gold etc.