Taxation · Chapter 6 / 34
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.
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.
Sources
- Income Tax Act — Section 194K (TDS on income from units) · accessed Jun 2026
- Income Tax Act — Section 195 (TDS on payments to non-residents) · accessed Jun 2026
- AMFI — NRI Investment FAQs · accessed Jun 2026