Prior to April 2020, mutual fund dividends were tax-free in the hands of investors i.e they didn’t have to pay income tax on the dividend income from their mutual fund investments. The fund house would deduct Dividend Distribution Tax (DDT) from the distributable surplus (profit) of the fund to calculate net distributable surplus. This amount was distributed in proportion to the units held in the fund by all those investors who had opted for dividend option.
Now, the the mutual funds don’t need to deduct DDT at the source, but the investor is liable to pay income tax on dividend from mutual funds as per his/her highest income tax slab. While in the DDT regime, a uniform tax rate impacted the investors who had opted for dividend
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