Key takeaways
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Since April 2020, dividends from mutual funds are taxed at your income slab rate✓
The old DDT system (10% effective) no longer applies✓
For 30% bracket investors, dividends are now taxed at 30%✓
Growth option is more tax-efficient than dividend option for most investors✓
The only case for dividend option: retired investors in the 0–5% tax bracket needing income⚠️
What changed on April 1, 2020
Before April 2020:
Dividend Distribution Tax (DDT) was paid by the fund before distributing.
For equity funds: effective DDT was ~10%.
You received dividends with no additional tax liability.
After April 2020:
DDT abolished. Dividends added to YOUR total income.
If you earn ₹15L salary and receive ₹50,000 in dividends → ₹15.5L taxable income.
The ₹50,000 dividend taxed at your highest slab — possibly 30%.
The tax on dividends tripled for high-income investors.
Growth option vs dividend option — post 2020
✅ Growth option (better for most)
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No payouts — NAV keeps compounding✓
Tax only when you redeem — you control timing✓
Equity LTCG taxed at 10% (above ₹1.25L) after 1 year✓
Better for wealth building over 5+ years✓
Tax-efficient for anyone in 20%+ income bracketDividend option (niche use only)
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Regular payouts to your bank account✓
Taxed at your full slab rate — up to 30%✓
Use only if: retired, in 0–5% bracket, need income✓
TDS deducted if annual dividend > ₹5,000 from one AMC✓
Not a 'free income' strategy — full taxation applies✅
TDS on dividends — what to expect
If your total dividend from a single AMC exceeds ₹5,000 in a financial year:
The AMC deducts 10% TDS before crediting the dividend to you.
Example: ₹12,000 dividend from Mirae Asset. TDS: ₹1,200. You receive ₹10,800.
You claim this ₹1,200 TDS credit when filing ITR. If your actual tax rate is 30%, you pay the additional 20% difference at filing time.
Action: check Form 26AS after the financial year to ensure all dividend TDS is reflected correctly.
⚠Educational content only. Numbers shown are illustrative — actual returns vary. This is not investment advice. Consult a SEBI-registered financial advisor before investing.
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