DDT on debt fund investments for retail investors has been increased to 25% from 12.5%
The dividend distribution tax (DDT) on debt fund investments for retail investors has been hiked to 25% from 12.5% (plus surcharge and cess).
DDT is the tax that debt mutual funds (MFs) pay on the dividend income distributed to retail investors. Although dividends from mutual funds are tax-free in the hands of the investor, your debt fund deducts DDT from the income earmarked for distribution, and gives the rest to investors.
Currently, liquid funds pay a DDT of 25% (plus surcharge and cess). All other types of debt funds pay 12.5% (plus surcharge and cess) on income distributed to retail investors; and even this is now increased to 25%.
Retirement Planning Strategy Takes A Hit:
This will be a big hit to those you use their mutual fund debt portfolio as a retirement portfolio, receiving income as dividend distributed to them on regular basis.
Hence, financial planers have a key role to take conscience of the matter and restructure retirement plans of their clients in accordance to the change that has come up.
Clients should ideally invest in growth option with more than a year of horizon in mind. This way they will be able to have the indexation benefits. hose who need regular incomes to be withdrawn from the portfolio, may opt for SWP (Systematic Withdrawal Plan).
However, in case of corporates, DDT paid by all types of debt funds continue to be at 30%.
A Word Of Caution:
Has your advisor / advisory changed debt funds from DIVIDEND to GROWTH Option. It Not, DO IT BEFORE 1st June ' 2013.
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