In the Union Budget presented by finance minister Nirmala Sitharaman, the bill has proposed the withdrawal of the 20% Tax Deducted at Source (TDS) on the repurchase of units by mutual funds and the Unit Trust of India (UTI), which is an initial step towards simplifying tax regulations for charities and Tax Deducted at Source (TDS) that will merge two tax exemption schemes for charities into a single framework.Additionally, it consolidates the TDS rates - the 5% rate for many payments will be unified with the 2% rate, and the 20% rate for mutual funds or UTI unit repurchases will be eliminated. Apart from this, the TDS rate for e-commerce operators is proposed to drop from 1% to 0.1%. Furthermore, the bill suggests allowing the credit of Tax Collected at Source (TCS) against TDS deducted from salaries. There are also plans to legitimate delays in TDS payments up to the filing deadline for statements and to establish a standard operating procedure for TDS defaults, as well as simplify and rationalize compounding guidelines for such defaults.Previous TDS Rule20% TDS on Repurchase: Before this proposal, when mutual fund units were repurchased (or redeemed) by investors, a TDS of 20% was applicable. This means that 20% of the gains from the redemption were withheld as tax before the investor received the proceeds.Changes in Union Budget 2024Withdrawal of 20% TDS: The Union Budget 2024 has proposed the removal of this 20% TDS. This means that mutual funds and UTI will no longer deduct 20% tax at the time of repurchase of units.ImplicationsAccording to the change, it will increase the liquidity for investors. Investors will receive the full amount of their redemption proceeds without any tax deduction, improving their liquidity.However, the investors will still need to pay capital gains tax on their mutual fund investments, but it will be their responsibility to report and pay this tax when filing their annual income tax returns. It is anticipated that this will ease the transactions. It will also simplify the redemption process as investors will not need to account for TDS when planning their finances.Experts believe that this change is likely aimed at making mutual fund investments more attractive and reducing administrative burdens for both investors and mutual fund companies.
