Section 194K: TDS on Mutual Fund Dividend and IDCW Income

TDS Rate and Threshold Under Section 194K

For resident investors, the TDS rate under Section 194K is 10%. The Income Tax Department’s TDS rate chart lists Section 194K for “income in respect of units payable to resident person” at 10%. 

Threshold change: From FY 2025-26, the Section 194K threshold increased from ₹5,000 to ₹10,000. This means TDS is not deducted if the income from the relevant payer does not exceed ₹10,000 during the financial year.

Note: Once the ₹10,000 threshold is crossed, TDS is generally deducted on the full eligible IDCW income , not only on the amount above ₹10,000.

Example: Suppose an investor receives ₹14,000 as IDCW from one fund house in FY 2025-26.

The investor should report gross income of ₹14,000 in the ITR and claim a ₹1,400 TDS credit.

When TDS Is Deducted

TDS is deducted at the earlier of credit or payment . This matters because TDS may apply even when IDCW is reinvested rather than paid into the bank account. If the income is credited to the investor’s account and the threshold condition is met, TDS may apply even if the investor receives additional units rather than cash.

For example, if ₹15,000 is declared as IDCW reinvestment, the AMC may deduct ₹1,500 as TDS and reinvest only ₹13,500 into additional units. The gross IDCW amount remains relevant for tax reporting, even if the investor receives additional units rather than cash .

What Section 194K Does Not Cover

Section 194K should not be applied to every amount received from a mutual fund. It is meant for income in respect of specified units, mainly dividend or IDCW income for resident investors. Receipts that arise because units are sold, redeemed or withdrawn are generally handled under capital gains rules .

Capital gains rules should be checked separately because the rate depends on the type of mutual fund, holding period, and applicable law for that year. This distinction is important because an investor may have no TDS under Section 194K but may still have taxable capital gains at the time of redemption.

Section 194K Under the Income-tax Act, 2025

For transactions up to 31 March 2026, Section 194K of the Income-tax Act, 1961, remains the relevant reference for TDS on income from specified mutual fund units.

For payments or credits on or after 1 April 2026, the corresponding TDS provision should be checked under Section 393(1) of the Table Sl. No. 4(i) of the Income-tax Act, 2025. This mapping is important because deductors, investors, and tax teams should use the new Act reference for Tax Year 2026-27 onward, rather than relying solely on the old Section 194K reference.

The practical treatment remains focused on the same type of income: dividend or IDCW income from specified units payable to resident investors. Capital gains from redemption, SWP withdrawals and growth plan gains should still be checked separately under capital gains provisions.

Form changes from Tax Year 2026-27

Form 121 is the statutory declaration for cases where the taxpayer’s estimated tax liability is nil . It replaces Forms 15G and 15H and aligns the declaration process with the Income-tax Act, 2025.

How to Check and Claim TDS Credit

Investors should not assume that the TDS deducted by the AMC will automatically be correct in their ITR. Before filing, match the TDS certificate with the tax credit statement . For FY 2025-26 and earlier Act reporting, check Form 26AS and AIS. For new Act reporting, Form 140 data is expected to generate Form 131 as the TDS certificate, and the deducted amount reflects in Form No. 168 / AIS as “TDS by deductor.”  A simple check:

1. Download the AMC dividend or IDCW statement.
2. Check the gross payout, TDS deducted and PAN.
3. Match the TDS with Form 26AS / AIS or Form 168, depending on the year.
4. If the TDS credit is missing, contact the AMC or registrar before filing.
5. Claim only the TDS credit visible or properly supported in your tax records.

If excess TDS has been deducted and your final tax liability is lower, the excess amount can be claimed as a refund while filing the ITR , provided the TDS credit is correctly reflected or supported in your tax records.

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Practical Points for Investors and Deductors

For investors

Do not treat TDS deduction as final tax payment. Section 194K only collects tax in advance . The actual tax liability depends on your total income, slab rate and return filing position. This is why the gross IDCW or dividend income should be checked before filing the ITR, especially if you are expecting a refund.

For deductors:

The key compliance responsibility is not just deducting TDS, but also depositing it and reporting it correctly . If the PAN, amount or form reporting is wrong, the investor may not get proper credit even though tax was deducted.

For investors checking records:

Keep the AMC statement, TDS certificate and tax credit statement together before filing. If the TDS amount in your records does not match the government statement, raise it with the AMC or registrar before claiming the credit.

Conclusion

Section 194K is mainly relevant for resident investors who receive mutual fund dividend or IDCW income. The current threshold is ₹10,000, and TDS is deducted at 10% when the applicable payer-level threshold is crossed. It does not apply to growth plan gains, SWP withdrawals or redemption proceeds because those are handled under capital gains rules.

From 1 April 2026 onward, readers should also check the new Income-tax Act, 2025 mapping before using the old Section 194K reference. The relevant new reference is Section 393(1), Table Sl. No. 4(i). Form 121, Form 140 and Form 131 also become important for nil TDS declaration, TDS statement filing and TDS certificate reporting under the new framework.