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9.3 Dividend (IDCW) Income and Tax Deducted at Source

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

9.3 Dividend (IDCW) Income and Tax Deducted at Source

Key Takeaways Explain This Topic AI

Dividend Distribution Tax was abolished from 1 April 2020, so IDCW is taxed in the investor's hands.

IDCW is added to total income and taxed at the investor's applicable slab rate.

TDS under section 194K applies at 10% where IDCW from a payer exceeds INR 10,000 in a financial year.

The section 194K threshold was raised from INR 5,000 to INR 10,000 with effect from 1 April 2025.

Non-residents face TDS under section 195 on both distributions and capital gains, subject to treaty relief.

Last updated: August 2026

The Shift from DDT to Investor-Level Tax

Until 31 March 2020, mutual fund distributions carried Dividend Distribution Tax paid by the fund before payout, and the amount received was exempt in the investor's hands. That regime made distributions look tax-free while a substantial tax had already been suffered invisibly.

DDT was abolished with effect from 1 April 2020. IDCW is now taxed directly in the investor's hands, which has two effects the exam draws on:

Tax now depends on the investor's own slab , so an investor in the 5% bracket pays far less than one in the 30% bracket on the same distribution.

Distributions became visibly taxable, which is a large part of why the IDCW option lost favour relative to growth.

How IDCW Is Taxed

IDCW received from any mutual fund scheme — equity-oriented or otherwise — is:

  • Added to the investor's total income
  • Taxed at the applicable slab rate , plus surcharge and cess

There is no separate concessional rate and no exemption threshold. A 30%-slab investor receiving INR 60,000 of IDCW pays INR 18,000 plus surcharge and cess.

This is why growth generally beats IDCW. Compare the same underlying return:

  • IDCW option Growth option
  • Gains distributed Taxed at slab, up to 30% Not distributed
  • Gains retained — Compound within the scheme untaxed
  • Tax on redemption On the balance Capital gains, 12.5% long-term for equity-oriented

For a high-slab investor in an equity-oriented scheme the difference is stark: 30% on distributions versus 12.5% on long-term capital gains , and the growth option additionally defers the liability until redemption. An investor who genuinely needs periodic cash is usually better served by a systematic withdrawal plan from the growth option, since each withdrawal is a redemption taxed as capital gains rather than as income.

Tax Deducted at Source: Section 194K

  • Item Position
  • Provision Section 194K
  • Applies to IDCW paid to a resident
  • Rate 10%
  • Threshold Aggregate IDCW exceeding INR 10,000 from a payer in a financial year
  • Threshold history Raised from INR 5,000 to INR 10,000 with effect from 1 April 2025
  • No PAN or inoperative PAN Higher rate of 20% under section 206AA
  • Applies to capital gains? No — section 194K covers income distributions only

Two points that questions turn on.

TDS is not the final tax. It is a credit. The investor still includes the gross IDCW in total income, computes tax at their slab, and claims the TDS deducted. A 30%-slab investor who suffered 10% TDS pays the balance; a 5%-slab investor may receive a refund.

There is no TDS on capital gains for residents. A resident redeeming units receives the full proceeds with nothing withheld, and must pay any tax due through advance tax or self-assessment. Investors frequently assume tax has been handled because none was deducted, and a distributor should say plainly that redemption proceeds arrive gross of tax.

Non-Residents

The position is materially different and is examined as a contrast.

Resident Non-resident

TDS on IDCW 10% under section 194K above INR 10,000 20% plus surcharge and cess under section 195, no threshold

TDS on capital gains None Yes , deducted at the applicable rate under section 195

Treaty relief Not applicable Available under an applicable DTAA , subject to a Tax Residency Certificate and Form 10F

For a non-resident, TDS on capital gains is deducted at source at the rate applicable to the gain — for example the equity-oriented short-term or long-term rate, or the slab rate for Specified Mutual Funds — so redemption proceeds arrive net . This is a common source of confusion for NRI investors, who expect the gross amount.

Form 15G and Form 15H

A resident whose total income is below the taxable limit may submit Form 15G (or Form 15H for a senior citizen) to the mutual fund, declaring that no tax is payable, so that TDS is not deducted on IDCW. A distributor assisting an investor should ensure the declaration is genuinely applicable — a false declaration carries consequences for the investor.

What Appears on the Statement

The account statement shows the IDCW declared, the TDS deducted, and the net amount credited. Form 26AS and the Annual Information Statement reflect the TDS, and the investor should reconcile these when filing. A distributor who can point an investor to those documents saves a great deal of confusion in the filing season.