Under the existing
provisions of section 115R any amount of income distributed by the specified
company or a Mutual Fund to its unit holders is chargeable to additional
income-tax. In case of any distribution made by a fund other than equity
oriented fund to a person who is not an individual and HUF, the rate of tax is
30% whereas in case of distribution to an individual or an HUF it is 12.5% or
25% depending on the nature of the fund.
In order to provide uniform taxation for all
types of funds, other than equity oriented fund, it is proposed to increase the
rate of tax on distributed income from 12.5% to 25% in all cases where
distribution is made to an individual or a HUF.
Further in case of an Infrastructure debt fund
(IDF) set up as a Non-Banking Finance Company (NBFC) the interest payment made
by the fund to a non-resident investor is taxable at a concessional rate of 5%.
However in case of distribution of income by an IDF set up as a Mutual Fund the
distribution tax is levied at the rates described above in the case of a Mutual
Fund.
In order to bring parity in taxation of income
from investment made by a non-resident Investor in an IDF whether set up as a
IDF-NBFC or IDF-MF, it is proposed to amend section 1 15R to provide that tax @
5% on income distributed shall be payable in respect of income distributed by a
Mutual Fund under an IDF scheme to a non-resident Investor.
