TDS on Income in Respect of Mutual Fund and Specified Units

Tax may be deducted at source when specified income from mutual fund units and certain successor Unit Trust of India arrangements is paid to a resident. From 1 April 2026, this resident unit-income TDS rule is contained in Section 393(1), Table Serial No. 4(i) of the Income-tax Act, 2025.

Current law from 1 April 2026: Section 393(1), Table Serial No. 4(i) prescribes TDS at 10 percent where the aggregate qualifying income crosses Rs. 10,000 during the tax year. The rule covers specified mutual fund units, units from the Administrator of the specified undertaking and units from the specified company.

Income covered by Section 393

The current provision covers income in respect of units of a Mutual Fund specified in Schedule VII, Table Serial No. 20 or 21; units from the Administrator of the specified undertaking; and units from the specified company. The payer responsible for the qualifying income is required to examine the resident-payee TDS rule.

Current TDS rate and threshold

Section 393(1), Table Serial No. 4(i) specifies a 10 percent TDS rate and a Rs. 10,000 monetary threshold. The threshold applies to the qualifying unit income covered by this table item during the tax year.

Capital gains are different from unit income

The legacy Section 194K provision expressly excluded income in the nature of capital gains. The current Section 393 table item similarly concerns income in respect of the specified units; a redemption or transfer giving rise to capital gains must be classified under the applicable capital-gains provisions rather than treated automatically as unit-income distribution for this TDS rule.

When is TDS deducted?

The TDS obligation generally arises at the earlier of credit of the qualifying income to the payee or payment by any mode. The statutory rules should also be checked where an amount is credited to a suspense account or another account instead of being credited directly to the investor.

Declaration for no deduction

Income from specified mutual fund and related units is one of the categories for which an eligible taxpayer may furnish the prescribed declaration for no deduction under Section 393(6), subject to all statutory conditions. The Income-tax Rules, 2026 prescribe the applicable declaration form and procedure.

Transition from Section 194K to Section 393

Earlier event of credit or payment	Applicable law	Provision
On or before 31 March 2026	Income-tax Act, 1961	Section 194K, where its conditions are satisfied
On or after 1 April 2026	Income-tax Act, 2025	Section 393(1), Table Serial No. 4(i)

The Income Tax Department's transition guidance confirms that TDS is governed by the Act applicable when the earlier event of credit or payment occurs. For current transactions, the Section 393 table item should be quoted rather than legacy Section 194K.

Legacy Section 194K of the Income-tax Act, 1961

Legacy provision: Section 194K required a person responsible for paying a resident specified income in respect of qualifying units to deduct income-tax at 10 percent, subject to the threshold and exclusions applicable for the relevant financial year.

The uploaded historical provision covers units of a Mutual Fund specified under Section 10(23D), units from the Administrator of the specified undertaking, and units from the specified company. It records a Rs. 5,000 annual threshold and excludes income in the nature of capital gains. That Rs. 5,000 figure is historical and should not be used for a current transaction, for which Section 393 specifies Rs. 10,000.

Administrator

For legacy Section 194K, "Administrator" referred to the Administrator mentioned in Section 2(a) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.

Specified company

"Specified company" referred to the company described in Section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.

Specified undertaking

"Specified undertaking" had the meaning assigned by Section 2(i) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.

Legacy suspense-account rule

Section 194K clarified that where qualifying income was credited to a suspense account or another account in the payer's books, that credit was treated as credit to the payee for purposes of the TDS provision.

Practical compliance checklist

Confirm residence: Section 393(1), Table Serial No. 4(i) is a resident-payee rule. Non-resident unit holders may fall under different withholding provisions.

Identify the payment: distinguish income distribution from proceeds giving rise to capital gains.

Check the units: confirm that the units fall within the mutual fund, Administrator or specified-company categories in the provision.

Apply the threshold: for the current provision, examine the Rs. 10,000 aggregate threshold for the tax year.

Apply the rate: the current statutory rate for Section 393(1), Table Serial No. 4(i) is 10 percent, subject to other applicable TDS provisions.

Check declarations or certificates: consider a valid no-deduction declaration or lower/nil deduction certificate where legally available.

Use the correct section reference: quote Section 393(1), Table Serial No. 4(i) for current reporting rather than Section 194K.

Related Income Tax provisions

Dividend TDS: legacy Section 194

Interest other than interest on securities: legacy Section 194A

Legacy unit repurchase and lottery ticket commission provisions

Interest on securities and accumulated balance

For a live payment, verify the nature of the distribution, resident status, current Finance Act, PAN status and any valid declaration or lower/nil deduction certificate.