In a significant relief for mutual fund investors, Finance Minister Nirmala Sitharaman announced on Tuesday the withdrawal of the 20% Tax Deducted at Source (TDS) on the repurchase of mutual fund units. This change is part of the Finance Bill, 2024, which aims to omit Section 194F of the Income-tax Act.

Clause 55 of the Finance Bill, 2024, proposes the removal of Section 194F, which mandates a 20% TDS on payments made on account of the repurchase of units by Mutual Funds or the Unit Trust of India (UTI). The current provision requires the person responsible for making such payments to deduct income-tax at the rate of 20% at the time of payment, as specified in sub-section (2) of Section 80CCB.

The proposed amendment, which will take effect from October 1, 2024, seeks to eliminate this requirement, thereby reducing the tax burden on mutual fund investors.

This development follows the introduction of Section 194K in the Finance Act, 2020, by FM Sitharaman during the Budget 2020. Section 194K mandated a tax deduction on the income distribution from mutual funds, subject to a specified limit, for resident individuals. The withdrawal of Section 194F simplifies the tax implications for mutual fund transactions and aligns with the government’s efforts to streamline tax provisions and promote investment in mutual funds.