What is dividend distribution tax?

Dividends are paid from the profit made by Mutual Fund schemes purely out of investment activities pertaining to the scheme’s portfolio and are at the discretion of the trustee. If the scheme makes a loss in a falling market, the trustees may decide to forgo dividend payout announcement. Since dividend is a profit or income, it is considered taxable and the tax applicable on dividends is called Dividend Distribution Tax (DDT). Earlier dividends were taxable at source i.e the scheme had to pay DDT before distributing it to investors. This obviously reduced the amount of dividend payout, but it was tax-free in the hands of investors.

With effect from Apr 01, 2020, DDT has been abolished and mutual fund dividends have been made taxable in the hands of