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nism-series-xb-section-194k-tds-mutual-fund-idcw-dividend[ INVESTMENT ADVISER (LEVEL 2) ]

Under Section 393(1) of the Income-tax Act, 2025 (the erstwhile Section 194K of the Income-tax Act, 1961), what is the TDS withholding threshold on mutual fund IDCW dividend distributions paid to resident unitholders?

[ A ]20.0% TDS on all dividend payments exceeding ₹10,000.
[ B ]10.0% TDS if the aggregate dividend distribution paid or credited by an AMC to a unitholder exceeds ₹5,000 in a financial year.[ CORRECT ]
[ C ]Zero TDS on mutual fund dividends.
[ D ]10.0% TDS on all dividend payments exceeding ₹50,000.
Takeaway

The correct answer is B: Section 393(1) (the erstwhile Section 194K) requires an AMC to deduct 10% TDS on mutual fund IDCW dividend distributions once the aggregate paid or credited to a resident unitholder crosses ₹5,000 in a financial year.

Derivation
Section 393(1) of the Income-tax Act, 2025 (the erstwhile Section 194K of the Income-tax Act, 1961) was introduced after dividend distribution tax was abolished in 2020, shifting the dividend tax liability onto unitholders directly. To ensure the tax is collected at source, AMCs must withhold 10% TDS the moment the total dividend/IDCW paid to a single unitholder across the financial year exceeds the ₹5,000 threshold -- below that, no TDS applies even though the income remains taxable in the unitholder's return. Investors can avoid the deduction (not the underlying tax) by filing Form 15G/15H if eligible, which is a common follow-up point tested alongside this threshold.
Why the others fail
A — 20.0% TDS on all dividend payments exceeding ₹10,000.
Both the rate and threshold are wrong; the statutory figures are 10% TDS above a ₹5,000 threshold, not 20% above ₹10,000.
C — Zero TDS on mutual fund dividends.
Confuses this with the PAN-non-furnishing penal rate (20%); the default statutory TDS on dividends is 10%, not zero.
D — 10.0% TDS on all dividend payments exceeding ₹50,000.
The threshold is overstated; TDS under Section 393(1) (the erstwhile Section 194K) applies once payouts exceed ₹5,000 per year, not ₹50,000.