Is section 10(23D) still valid ?
Some context - Indian Finance Act 2020 has abolished Dividend Distribution Tax (DDT) and, with effect from April 1, 2020, dividends declared by Indian companies would be taxable in the hands of shareholders.
section 10(23D) - Section 10(23D) of the Income Tax Act provides that any income earned by a Mutual Fund registered under the SEBI Act, 1992 or the Regulations made thereunder, shall not be included in computing its total income of a previous year.
Consider the company Infosys and Axis Blue Chip Fund
So previously any dividend declared by Infosys, they had to pay a DDT rate of 20.5 % I think and so any dividend received either by a retail investor or a Mutual Fund like Axis Blue Chip was already net of this tax and did not have to pay any tax.
But now the retail investor has to pay dividend tax according to its income, but I am not sure how does it happen in case of Mutual Funds.
- Am I wrong in my assumption that when Infosys declared dividend the 20.5 % tax was deducted for Mutual Funds or were they given the entire amount because of the section 10(23D) ?
- If the above assumption is correct and if section 10(23D) still holds good, isn’t a dividend received by a Mutual Fund now not taxed at all ? And if the MF is a Growth Type Fund where all type income is reinvested, they can significantly better grow the money as they don’t have to pay any tax on the dividend. My doubt comes from the fact that I have not seen any MF house advertising this benefit, as IMO this gives them a huge edge, my guess is they are getting taxed somewhere on that dividend, if so where is this happening ?
P.S. I know that the returns on the Fund will be taxed when I eventually sell my Portfolio but that can be several years down the line at 10% marginal rate of LTCG with significant compounding already taking place with that extra dividend amount that was not taken even in taxes invested back.
P.P.S I also know there are dividend paying type of MFs so I am not talking about those, strictly talking about Growth Mutual Funds.
@Quicko I know this is not strictly a personal Income Tax thing but any light that you can shed on it will be appreciated.