Amended and updated notes on section 115R of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to tax on distributed income to unit holders.
Chapter XIIE(Sections 115R to 115T) of the Income Tax Act 1961 deals with the provisions related to special provisions relating to tax on distributed income. Section 115R of IT Act 1961-2023 provides for tax on distributed income to unit holders.
Recently, we have discussed in detail section 115QC (When company is deemed to be assessee in default) of IT Act 1961. Today, we learn the provisions of section 115R of Income-tax Act 1961. The amended provision of section 115R is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 115R of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-115R: Tax on distributed income to unit holders
Section 115R(1) of Income Tax Act
Notwithstanding anything contained in any other provisions of this Act and section 32 of the Unit Trust of India Act, 1963 (52 of 1963), any amount of income distributed on or before the 31st day of March, 2002 by the Unit Trust of India to its unit holders shall be chargeable to tax and the Unit Trust of India shall be liable to pay additional income-tax on such distributed income at the rate of ten per cent:
Provided that nothing contained in this sub-section shall apply in respect of any income distributed to a unit holder of open-ended equity oriented funds in respect of any distribution made from such fund for a period of three years commencing from the 1st day of April, 1999.
Section 115R(2) of Income Tax Act
Notwithstanding anything contained in any other provision of this Act, any amount of income distributed by the specified company or a Mutual Fund to its unit holders on or before the 31st day of March, 2020 shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate of—
[Sub-section(2) of section 115R has been amended w.e.f. 01.04.2021 by the Finance Act 2020]
(i) twenty-five per cent on income distributed to any person being an individual or a Hindu undivided family by a money market mutual fund or a liquid fund;
(ii) thirty per cent on income distributed to any other person by a money market mutual fund or a liquid fund;
(iii) ten per cent on income distributed to any person by an equity oriented fund;
(iv) twenty-five per cent on income distributed to any person being an individual or a Hindu undivided family by a fund other than a money market mutual fund or a liquid fund or an equity oriented fund; and
(v) thirty per cent on income distributed to any other person by a fund other than a money market mutual fund or a liquid fund or an equity oriented fund:
Provided that where any income is distributed by a mutual fund under an infrastructure debt fund scheme to a non-resident (not being a company) or a foreign company, the mutual fund shall be liable to pay additional income-tax at the rate of five per cent on income so distributed:
Provided further that nothing contained in this sub-section shall apply in respect of any income distributed,—
- (a) by the Administrator of the specified undertaking, to the unit holders; or
- (b) [Omitted] :
Provided also that no additional income-tax shall be chargeable in respect of any amount of income distributed on or after the 1st day of September, 2019 by a specified Mutual Fund, out of its income derived from transactions made on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange.
Explanation: For the purposes of this sub-section,—
(i) “administrator” and “specified company” shall have the meanings respectively assigned to them in the Explanation to clause (35) of section 10;
(ia) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder;
(ii) “infrastructure debt fund scheme” shall have the same meaning as assigned to it in clause (1) of regulation 49L of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).
(iii) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(iv) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;
(v) “specified Mutual Fund” means a Mutual Fund specified under clause (23D) of section 10—
- (a) located in any International Financial Services Centre;
- (b) of which all the units are held by non-residents;
(vi) “unit” means beneficial interest of an investor in the fund.
Section 115R(2A) of Income Tax Act
For the purposes of determining the additional income-tax payable in accordance with sub-section (2), the amount of distributed income referred therein shall be increased to such amount as would, after reduction of the additional income-tax on such increased amount at the rate specified in sub-section (2), be equal to the amount of income distributed by the Mutual Fund.
Section 115R(3) of Income Tax Act
The person responsible for making payment of the income distributed by the Unit Trust of India or a Mutual Fund and the Unit Trust of India or the Mutual Fund, as the case may be, shall be liable to pay tax to the credit of the Central Government within fourteen days from the date of distribution or payment of such income, whichever is earlier.
Section 115R(4) of Income Tax Act
No deduction under any other provision of this Act shall be allowed to the Unit Trust of India or to a Mutual Fund in respect of the income which has been charged to tax under sub-section (1) or sub-section (2).