The Association of Mutual Funds of India (Amfi) has written to the government to raise the exemption threshold of tax deducted at source on dividend income to benefit small retail investors.

In the Union budget for 2020-21, finance minister Nirmala Sitharaman scrapped the dividend distribution tax (DDT) on dividend paid by companies and mutual funds to shareholders or unit holders. As a result, the onus of paying the tax on dividends is now with the investors.

Moreover, the government has proposed a levy of 10 per cent tax deducted at source on the dividend paid by a company or a mutual fund if the amount of such dividend income exceeds Rs 5,000 in a year. Finance Bill 2020 has accordingly proposed the insertion of a new section — 194K — in the Income Tax Act.

“We have written to the government requesting to increase the TDS limit to Rs 50,000 from Rs 5,000 so that for senior citizens, pensioners and small investors there is no TDS and they don’t have to file returns to get refunds. This will reduce administrative burden both for the funds and the investors,” N.S. Venkatesh, CEO of Amfi, said on the sidelines of an Indian Chamber of Commerce summit.

Venkatesh said once the proposed changes take effect, investors would get the full dividend amount without any tax deduction. But the impact would be more on individuals in the 30 per cent tax bracket.

He said that in the case of DDT, tax is already deducted before payment and there is no chance of refund. Those who do not have taxable income would now be able to get the entire dividend and file tax returns and get the refund if applicable.

No ELSS concern

The option given in the budget to taxpayers to choose a lower tax structure by giving up certain exemptions have raised concerns over whether equity-linked savings schemes will be able to attract investors, especially first-time investors.

“It is early stages, but I personally believe inflows will continue. The returns are much better than comparable instruments,” said Venkatesh.