July 07, 2025
4 mins read
If you’re investing in mutual funds, you might have heard about something called Section 194K. Basically, it’s about tax being taken off your mutual fund dividends right at the source, before you even get your money.
If you earn dividends from your mutual funds and the total dividend amount from a single fund house goes over ₹5,000 in a year, then tax is deducted. This helps avoid confusion when you file your income tax return later.
It’s good to know how this works so you’re not caught off guard when you see less money than expected in your account.
Here is a breakdown of the income types from mutual funds and how they are treated under Section 194K:
Income Type | TDS Deducted? | Tax Info |
Dividend from equity funds | Yes, if over ₹5,000 | Taxed as per your income slab |
Dividend from debt funds | Yes, if over ₹5,000 | Taxed as per your income slab |
Short-term capital gains (Equity) | No | Taxed at 15% |
Long-term capital gains (Equity) | No | 10% on gains above ₹1 lakh |
Short-term capital gains (Debt) | No | Added to income, taxed as per slab |
Long-term capital gains (Debt) | No | 20% with indexation |
Income below ₹5,000 from any scheme | No | No TDS deducted |
Capital gains on redemption/switch | No | You need to declare these yourself |
Section 194K applies to resident individuals and entities receiving dividend income from mutual funds. If your total dividend income from a single fund house exceeds ₹5,000 in a financial year, TDS at 10% is deducted. This threshold is considered across all schemes held with that particular fund house. It's important to note that capital gains are not subject to TDS under this section.
Section 194K applies to resident individuals and entities receiving dividend income from mutual funds. Non-resident investors are governed by Section 195 instead. Ensure your PAN is updated to avoid higher TDS rates.
If your total dividend income from a single fund house exceeds ₹5,000 in a financial year, TDS at 10% is deducted. This threshold is considered across all schemes held with that particular fund house.
Section 194K applies to both equity and debt mutual funds. Ensure you track your dividend income from all schemes to determine if TDS is applicable.
Capital gains arising from the sale or redemption of mutual fund units are not subject to TDS under Section 194K. However, you must report these gains in your income tax return.
Providing your PAN to the mutual fund house is essential. If PAN is not provided, TDS will be deducted at a higher rate of 20%. Update your PAN details to avoid this.
Understanding the rate and exemption limit helps you manage your mutual fund payouts better. If you are receiving income from mutual fund investments, Section 194K applies as follows:
The rate of TDS is 10% on dividend income exceeding ₹5,000 in a financial year. This threshold is considered across all mutual fund schemes held with a particular fund house. If your total dividend from a fund house crosses ₹5,000, then TDS is deducted on the entire amount, not just the portion above ₹5,000.
If you do not provide your PAN, the rate of TDS increases to 20%. Therefore, you must ensure that your PAN is updated with your fund house to avoid excess deductions.
Also, TDS is not deducted on capital gains. If you redeem or switch mutual fund units and make a profit, no TDS is deducted under this section. However, you are still required to report capital gains on your income tax return.
Some exceptions may apply depending on your situation. Here are key exemptions you should know about:
If your total dividend income from a fund house is less than ₹5,000 in a financial year, no TDS is deducted under Section 194K.
Any profit you make by selling or switching mutual fund units is not subject to TDS under this section, though you must report it in your tax return.
Section 194K does not apply to non-resident investors. Instead, their tax is deducted under Section 195, following different rates and rules for foreign investors.
If you don’t provide your PAN to the mutual fund, TDS will be deducted at a higher rate of 20%, so always keep your PAN updated.
Unlike other TDS sections, submitting Form 15G or 15H will not stop TDS deduction under Section 194K. The rules don’t accept these declarations here.
Before Section 194K came into effect, mutual fund dividends were tax-free in your hands. The fund house paid Dividend Distribution Tax (DDT), and you received the net dividend without any TDS.
Earlier, mutual fund houses paid Dividend Distribution Tax before giving dividends, so investors received net dividends without any tax deducted at source.
There was no TDS deducted on dividends by fund houses or investors, meaning you didn’t have to worry about tax deduction on dividend income.
Investors had to report and pay tax on capital gains separately based on the type of fund and how long they held the units.
Tax filing was simpler since no TDS deductions were made on dividends, resulting in fewer reporting requirements and easier income tax returns for investors.
If you earn dividends from mutual funds, Section 194K makes sure tax is deducted before you get paid — but only if your dividends go over ₹5,000 from one fund house in a year.
Remember, capital gains don’t get taxed here at source, but you still have to report them. Keep your PAN updated with your fund house, track your dividends, and check your tax credit on Form 26AS. Doing this helps avoid surprises and makes tax filing smoother.
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TDS is deducted at 10% on dividend income if your total dividend from a fund house exceeds ₹5,000 in a financial year. Without PAN, the rate is 20%.
If your total dividend income from a single mutual fund house does not exceed ₹5,000 in a financial year, no TDS will be deducted under Section 194K.
The asset management company (AMC) or mutual fund house is responsible for deducting TDS before paying the dividend to you.
No. Section 194K only applies to dividend income. Capital gains—whether short-term or long-term—are not subject to TDS under this section.
Yes. If your dividend income is below ₹5,000 or you are a non-resident, TDS is not deducted under Section 194K. Capital gains are also exempt from this section.
Yes. You can claim the TDS amount shown in your Form 26AS as a tax credit while filing your income tax return, which adjusts against your final tax liability.
Section 194K is levied when mutual fund dividend income is paid or credited to your account and exceeds the ₹5,000 threshold during the financial year.
No. Non-resident investors fall under the scope of Section 195. Section 194K is applicable only if you are a resident individual.
Yes. If your total tax liability is less than the TDS deducted, or if you fall under the exemption limit, you can claim a refund when filing your income tax return.
TDS deducted under Section 194K is reported in Form 26AS (Part A) against the investor’s PAN. It shows the name of the mutual fund/AMC, amount paid, and TDS deducted, allowing investors to claim credit while filing returns.
Yes. Section 194K applies to both paid and reinvested dividends. Even if dividends are reinvested and not received in cash, TDS is deducted if the total dividend income exceeds ₹5,000 in a financial year.
To claim a refund, the investor must file an income tax return (ITR) and report the dividend income. If the actual tax liability is lower than the TDS deducted, the excess amount is refunded by the Income Tax Department after processing the return.
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