TDS on mutual fund dividends (IDCW) and redemptions

Section 194K applies 10% TDS on IDCW above ₹5,000 per fund per year. Resident redemptions are TDS-free.

3 min read · Last reviewed 8 June 2026

Tax Deducted at Source (TDS) on mutual fund payouts is governed by different sections of the Income Tax Act depending on residency and the type of payment.

Resident investors

IDCW (dividend) payments: Section 194K applies. The AMC deducts 10% TDS on dividend payments if the total dividend from that fund in a financial year exceeds ₹5,000. You can submit Form 15G/15H if your total income is below the basic exemption.

Redemptions: No TDS on resident redemptions. You pay your own capital gains tax when filing returns.

NRI investors

NRIs face TDS on both dividends and redemptions under Section 195:

STCG (equity funds): 20% + surcharge + cess.
LTCG (equity funds): 12.5% + surcharge + cess above the ₹1.25 lakh annual exemption (the exemption is allowed at filing, not at TDS — full LTCG is TDS-ed).
Debt funds (post-1-April-2023 units): TDS at applicable slab rate, typically 30%.
IDCW: 20% + surcharge + cess.

Lower TDS rates may apply where India has a Double Taxation Avoidance Agreement (DTAA) with the NRI's country of residence — typically requires submission of TRC, Form 10F, and a beneficial-ownership declaration.

Practical takeaways

Resident IDCW recipients with annual dividend > ₹5,000 see 10% withholding. The actual liability could be higher (slab rate up to 30%); the residual is paid at filing.
Resident investors who redeem units never see TDS — your responsibility is to compute capital gains and pay self-assessment tax.
NRIs should factor in TDS as a working-capital drag and plan refunds via ITR-2.

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