Monthly Dividend income from Arbitrage fund vs FDs

Monthly Dividend income from Arbitrage fund vs FDs.

Anyone investing in Arbitrage MF for monthly dividend income.

They are tax free if the divided amount to 10 Lac p.a.

Assuming i want a income of say 5 Lac p.a from Arbitrage fund. I m picking edelwiess Arbritrage fund here. Does it make sense to do this or get the same income from FD and get taxed ?

Assuming edelwiess arbitrage gives 6.5% and above going forward.

My understanding is that i won’t have to pay any INCOME TAX on the 5 lac earned in the year from arbitrage fund. Is my understanding correct?


Arbitrage MFs are equity oriented, so dividend upto 10lks is exempt u/s 10(35). So yeah, you are right.

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I think its same. 10% DDT has been already deducted. Doesn’t matter if you pay tax directly or Fund house is paying in DDT form.
Correct me if I’m wrong.

So, if my dividend income exceeds 10 Lacs, then i have to pay 10% on the excess of 10 Lacs, again?

Isn’t this double taxation then?

Its same as incomes from other sources. Income above 10Lac falls under 20% tax slab so also here u have pay around 20% (10% DDT + 10% direct) tax if dividend is more than 10 Lac

My understanding was that dividend income was exempt from income tax.

This is new information.


Can you please confirm?

For you as an investor, upto 10lks dividend income is exempt.

But the company paying you dividend, would have

Upto 10lks dividend income is exempt. Above that it is at flat 10%. This is in your hands.

But yes like @Shivam_Gupta says, the fund would have already paid DDT before it reaches your hands.

Are you sure about his?.

Dividend income less than 10 Lac is exempt income and you don’t pay any income tax as per slab.

So assume that someone who has earned income entirely from dividends in a year amounting to less than 10 Lac but more than 2.5 Lacs, need not pay any income tax for that year.

However, if the dividend income is above 10 Lac, you have to pay 10% on the excess of 10 Lac for that year.Not sure if another 10% Direct is applicable like you say which adds up to 20%.

If you are earning more than 10 Lac then 10% DDT is to be paid by Fund house on the whole sum and 10% additionally by you on the amount exceeding 10Lac.
If Total alotted dividend to you is 12 Lac so-
10%*12Lac= 1.2 Lac is paid by Fund house
(you get 10.8 Lac)
10%*80000= 8000 is to be paid by you

you can get more information from this site

@Quicko IS THIS 10 LAKH rule still valid?

No. Dividends from shares and mutual funds are taxable at slab rates now. This applies even if the dividends are automatically reinvested by the mutual fund (dividend reinvest option): we are required to pay tax on the amount of dividend, even if it was not directly received in our bank accounts.

Hi @Ratna_sai_kosuru,

After Budget 2020, the DDT (Dividend Distribution Tax) was abolished, making dividends taxable in the hands of the shareholders from FY 2020-21 onwards. If the dividend is above INR 5,000 - TDS is required to be deducted u/s 194 and 194K.