Dividend Tax Up On MFs Investing In Money Markets

The Union Budget has raised up the dividend distribution tax (DDT) on mutual funds investing in money market and liquid markets to 25 per cent for all investors. The Finance Minister said the funds enjoy concessional tax rates allowing for huge arbitrage opportunities. Mutual fund managers said that though this provision may shift a few to the long-term bond market, investors will still enjoy higher tax benefits against fixed deposits of banks. Post-tax returns of investors in liquid and money market funds will be hit by the dividend distribution tax rate going up from 22.44 per cent to 28.32 per cent (including surcharge and cess) for corporates and from 14.03 per cent to 28.32 per cent for individuals. However, for non-liquid funds, the dividend distribution tax remains the same.