My client is a mutual fund trustee and has a demand for tax on income distributed to unit holders for a year before 2020. What rate applied to which kind of fund, what was exempt, and who is in default?
Section 115R(2) charged a specified company or a Mutual Fund to additional income-tax on income distributed to its unit holders on or before 31 March 2020, at twenty-five per cent where distributed to an individual or HUF by a money market mutual fund or a liquid fund, thirty per cent to any other person by such a fund, ten per cent to any person by an equity oriented fund, twenty-five per cent to an individual or HUF by any other fund, and thirty per cent to any other person by any other fund; sub-section (2A) grosses the distributed income up. Section 115S charges simple interest at one per cent a month for late payment of the s.115R tax, and s.115T deems the person responsible, and the specified company or Mutual Fund, to be an assessee in default with the whole recovery machinery applying.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 115R, section 115S and section 115T of the Income-tax Act, 1961, as amended up to 2026. It bears on section 115R, section 115R(2), section 115R(2A), section 115R(3), section 115S, section 115T, section 10(23D), section 112A of the Income Tax Act 1961, in How Tax Law Is Read and Demand, Recovery & Stay matters.
The library has had nothing at all on s.115R, and the section is unusually easy to misapply because the rate turns on two variables at once — the class of fund and the class of unit holder — and because the exemptions sit in three separate provisos with three different shapes. The first proviso is a rate override, not an exemption: where 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 rate is five per cent. The second proviso is a true exemption, but only one of its two limbs survives on the current text: clause (a) exempts income distributed by the Administrator of the specified undertaking to unit holders, and clause (b) is printed as omitted — '[***]'. That omitted clause (b) is the reason a great deal of older writing says equity oriented funds were exempt: on the text as it now stands they are not exempt but are charged at ten per cent under clause (iii) of sub-section (2). Which of the two positions applies to a given year has to be settled on the text in force in that year, and the departmental pages carry no footnote list from which the change can be dated. The third proviso is a narrow IFSC exemption: no additional income-tax on income distributed on or after 1 September 2019 by a specified Mutual Fund out of income derived from transactions on a recognised stock exchange located in an International Financial Services Centre where the consideration is paid or payable in convertible foreign exchange, and 'specified Mutual Fund' is defined in the Explanation as a s.10(23D) fund located in an IFSC all of whose units are held by non-residents. Sub-section (1) is a separate and older charge, on income distributed on or before 31 March 2002 by the Unit Trust of India, at ten per cent, with its own three-year proviso for open-ended equity oriented funds running from 1 April 1999. Sub-section (2A) is the grossing-up, in the same form as s.115-O(1B). Sub-section (3) gives fourteen days from the date of distribution or payment, whichever is earlier — note that this is a different formula from s.115-O(3), which runs from the earliest of declaration, distribution and payment. Sub-section (4) bars any other deduction to the UTI or the Mutual Fund in respect of the income charged. Sub-section (3A) is printed as omitted. Section 115T's Explanation is where the definitions for the whole Chapter live: 'Mutual Fund' means a fund specified under s.10(23D); 'equity oriented fund' means a fund referred to in clause (a) of the Explanation to s.112A and the Unit Scheme, 1964 of the Unit Trust of India; 'money market mutual fund' and 'liquid fund' take their meanings from the SEBI (Mutual Funds) Regulations, 1996. So the classification fight is a SEBI-classification fight, decided on the scheme's regulatory classification, not on the fund's actual portfolio.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 115R(1) charges the Unit Trust of India to additional income-tax at ten per cent on income distributed on or before 31 March 2002 to its unit holders, with a proviso excluding income distributed to a unit holder of open-ended equity oriented funds for a period of three years commencing 1 April 1999. Sub-section (2) charges a specified company or a Mutual Fund on income distributed to its unit holders on or before 31 March 2020, at the five rates in clauses (i) to (v). The first proviso substitutes five per cent for an infrastructure debt fund scheme distributing to a non-resident (not being a company) or a foreign company. The second proviso disapplies the sub-section to income distributed (a) by the Administrator of the specified undertaking to the unit holders, and (b), printed as omitted. The third proviso exempts income distributed on or after 1 September 2019 by a specified Mutual Fund out of income from transactions on a recognised stock exchange in an International Financial Services Centre where consideration is in convertible foreign exchange. The Explanation to sub-section (2) defines administrator, specified company, convertible foreign exchange, infrastructure debt fund scheme, International Financial Services Centre, recognised stock exchange, specified Mutual Fund and unit. Sub-section (2A) grosses up the distributed income. Sub-section (3) requires payment within fourteen days from the date of distribution or payment, whichever is earlier. Sub-section (3A) is printed as omitted. Sub-section (4) bars any other deduction in respect of the income charged. Section 115S charges simple interest at one per cent every month or part thereof from the day after the s.115R(3) due date to actual payment. Section 115T deems the person responsible and the specified company or Mutual Fund to be an assessee in default and applies all the collection and recovery provisions; its Explanation carries the Chapter definitions of Mutual Fund, equity oriented fund, Unit Trust of India, money market mutual fund and liquid fund.
On the text as it stands, distribution by a mutual fund is charged under s.115R(2) at rates that turn jointly on the SEBI class of the fund and on whether the unit holder is an individual or HUF; the charge is confined to income distributed on or before 31 March 2020; the only exemptions are the Administrator limb of the second proviso and the IFSC third proviso, clause (b) of the second proviso being omitted; the base is grossed up under sub-section (2A); and non-payment attracts one per cent monthly interest under s.115S and deemed default under s.115T.
This is statutory text, not a decision. The rate matrix is the operative feature: clauses (i) to (v) of sub-section (2) pair a fund class with a unit holder class, and the definitions that decide the fund class are not in s.115R at all but in the Explanation to s.115T, which imports the SEBI (Mutual Funds) Regulations, 1996 and the Explanation to s.112A.
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—
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Handle my notice → Ask a CA on WhatsAppSection 115R(2) charged a specified company or a Mutual Fund to additional income-tax on income distributed to its unit holders on or before 31 March 2020, at twenty-five per cent where distributed to an individual or HUF by a money market mutual fund or a liquid fund, thirty per cent to any other person by such a fund, ten per cent to any person by an equity oriented fund, twenty-five per cent to an individual or HUF by any other fund, and thirty per cent to any other person by any other fund; sub-section (2A) grosses the distributed income up. Section 115S charges simple interest at one per cent a month for late payment of the s.115R tax, and s.115T deems the person responsible, and the specified company or Mutual Fund, to be an assessee in default with the whole recovery machinery applying. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115R, section 115R(2), section 115R(2A), section 115R(3), section 115S, section 115T, section 10(23D), section 112A of the Income Tax Act 1961. It is reported as Section 115R, section 115S and section 115T of the Income-tax Act, 1961, as amended up to 2026. The library has had nothing at all on s.115R, and the section is unusually easy to misapply because the rate turns on two variables at once — the class of fund and the class of unit holder — and because the exemptions sit in three separate provisos with three different shapes. The first proviso is a rate override, not an exemption: where 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 rate is five per cent. The second proviso is a true exemption, but only one of its two limbs survives on the current text: clause (a) exempts income distributed by the Administrator of the specified undertaking to unit holders, and clause (b) is printed as omitted — '[***]'. That omitted clause (b) is the reason a great deal of older writing says equity oriented funds were exempt: on the text as it now stands they are not exempt but are charged at ten per cent under clause (iii) of sub-section (2). Which of the two positions applies to a given year has to be settled on the text in force in that year, and the departmental pages carry no footnote list from which the change can be dated. The third proviso is a narrow IFSC exemption: no additional income-tax on income distributed on or after 1 September 2019 by a specified Mutual Fund out of income derived from transactions on a recognised stock exchange located in an International Financial Services Centre where the consideration is paid or payable in convertible foreign exchange, and 'specified Mutual Fund' is defined in the Explanation as a s.10(23D) fund located in an IFSC all of whose units are held by non-residents. Sub-section (1) is a separate and older charge, on income distributed on or before 31 March 2002 by the Unit Trust of India, at ten per cent, with its own three-year proviso for open-ended equity oriented funds running from 1 April 1999. Sub-section (2A) is the grossing-up, in the same form as s.115-O(1B). Sub-section (3) gives fourteen days from the date of distribution or payment, whichever is earlier — note that this is a different formula from s.115-O(3), which runs from the earliest of declaration, distribution and payment. Sub-section (4) bars any other deduction to the UTI or the Mutual Fund in respect of the income charged. Sub-section (3A) is printed as omitted. Section 115T's Explanation is where the definitions for the whole Chapter live: 'Mutual Fund' means a fund specified under s.10(23D); 'equity oriented fund' means a fund referred to in clause (a) of the Explanation to s.112A and the Unit Scheme, 1964 of the Unit Trust of India; 'money market mutual fund' and 'liquid fund' take their meanings from the SEBI (Mutual Funds) Regulations, 1996. So the classification fight is a SEBI-classification fight, decided on the scheme's regulatory classification, not on the fund's actual portfolio. If it applies to you, the first step is this: Classify the fund first, from its SEBI classification, using the s.115T Explanation: money market mutual fund and liquid fund are defined by the SEBI (Mutual Funds) Regulations, 1996, and equity oriented fund by clause (a) of the Explanation to s.112A.
Section 115R(1) charges the Unit Trust of India to additional income-tax at ten per cent on income distributed on or before 31 March 2002 to its unit holders, with a proviso excluding income distributed to a unit holder of open-ended equity oriented funds for a period of three years commencing 1 April 1999. Sub-section (2) charges a specified company or a Mutual Fund on income distributed to its unit holders on or before 31 March 2020, at the five rates in clauses (i) to (v). The first proviso substitutes five per cent for an infrastructure debt fund scheme distributing to a non-resident (not being a company) or a foreign company. The second proviso disapplies the sub-section to income distributed (a) by the Administrator of the specified undertaking to the unit holders, and (b), printed as omitted. The third proviso exempts income distributed on or after 1 September 2019 by a specified Mutual Fund out of income from transactions on a recognised stock exchange in an International Financial Services Centre where consideration is in convertible foreign exchange. The Explanation to sub-section (2) defines administrator, specified company, convertible foreign exchange, infrastructure debt fund scheme, International Financial Services Centre, recognised stock exchange, specified Mutual Fund and unit. Sub-section (2A) grosses up the distributed income. Sub-section (3) requires payment within fourteen days from the date of distribution or payment, whichever is earlier. Sub-section (3A) is printed as omitted. Sub-section (4) bars any other deduction in respect of the income charged. Section 115S charges simple interest at one per cent every month or part thereof from the day after the s.115R(3) due date to actual payment. Section 115T deems the person responsible and the specified company or Mutual Fund to be an assessee in default and applies all the collection and recovery provisions; its Explanation carries the Chapter definitions of Mutual Fund, equity oriented fund, Unit Trust of India, money market mutual fund and liquid fund. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. On the text as it stands, distribution by a mutual fund is charged under s.115R(2) at rates that turn jointly on the SEBI class of the fund and on whether the unit holder is an individual or HUF; the charge is confined to income distributed on or before 31 March 2020; the only exemptions are the Administrator limb of the second proviso and the IFSC third proviso, clause (b) of the second proviso being omitted; the base is grossed up under sub-section (2A); and non-payment attracts one per cent monthly interest under s.115S and deemed default under s.115T.
This is statutory text, not a decision. The rate matrix is the operative feature: clauses (i) to (v) of sub-section (2) pair a fund class with a unit holder class, and the definitions that decide the fund class are not in s.115R at all but in the Explanation to s.115T, which imports the SEBI (Mutual Funds) Regulations, 1996 and the Explanation to s.112A. In the words reproduced by the source cited on this page: "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—"
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 115R, section 115S and section 115T of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115R, section 115R(2), section 115R(2A), section 115R(3), section 115S, section 115T, section 10(23D), section 112A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. On the text as it stands, distribution by a mutual fund is charged under s.115R(2) at rates that turn jointly on the SEBI class of the fund and on whether the unit holder is an individual or HUF; the charge is confined to income distributed on or before 31 March 2020; the only exemptions are the Administrator limb of the second proviso and the IFSC third proviso, clause (b) of the second proviso being omitted; the base is grossed up under sub-section (2A); and non-payment attracts one per cent monthly interest under s.115S and deemed default under s.115T. It arises in How Tax Law Is Read and Demand, Recovery & Stay matters, on section 115R, section 115R(2), section 115R(2A), section 115R(3), section 115S, section 115T, section 10(23D), section 112A of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Then classify each unit holder as an individual or HUF, or as any other person — the rate in s.115R(2) changes on that alone, twenty-five per cent against thirty per cent. Check the first proviso before applying any of those rates: an infrastructure debt fund scheme distributing to a non-resident who is not a company, or to a foreign company, is charged at five per cent. For a period when clause (b) of the second proviso was still on the statute book, take the exemption from the text in force for that year — the current text prints clause (b) as omitted and charges an equity oriented fund at ten per cent under clause (iii). Gross the distributed income up under s.115R(2A) before applying the rate; the computation mirrors s.115-O(1B). Diarise fourteen days from the date of distribution or payment, whichever is earlier, under s.115R(3) — not the s.115-O formula — and quantify s.115S interest at one per cent a month from the day after that. If recovery has begun, treat it as ordinary income-tax recovery: s.115T deems the person responsible for making the payment, and the specified company or Mutual Fund, to be an assessee in default and applies all the collection and recovery provisions of the Act.
Superseded by amendment. Section 115R(2) charges nothing on income distributed after 31 March 2020, and s.115R(1) nothing after 31 March 2002, so the Chapter is spent prospectively. It remains the operative law for years up to financial year 2019-20 and for the recovery and appeals flowing from them. Two consolidations of s.115R, of 2025 and 2026 vintage, print identical text, which is the whole of the corroboration for the wording on this page. Two limits on what has been established. No case law under s.115R, s.115S or s.115T has been searched for, and none is cited. And no commencement date can be sourced, because the consolidations of these sections carry no footnote list at all. In consequence this entry does not date the omission of clause (b) of the second proviso to s.115R(2), does not date the insertion of the ten per cent charge on an equity oriented fund in clause (iii), and does not date the omission of s.115R(3A). A practitioner working a pre-2018 year must find the text in force for that year rather than taking the current text from this page. That last point is not a formality. The omitted clause (b) of the second proviso is the reason a great deal of older writing says equity oriented funds were exempt; on the current text they are not exempt but are charged at ten per cent. Which of the two positions applies to a given year has to be settled on the text in force in that year, and it cannot be settled from this page. The dates printed in the statutory text itself - 31 March 2002, 1 April 1999, 31 March 2020 and 1 September 2019 - are reliable, because they are in the section and not in a footnote. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
WHAT THIS ENTRY IS. A statutory entry, not a decision. The date in 'decided_on', 1 April 2020, is neither a decision date nor the commencement of s.115R, s.115S or s.115T. It is the date from which s.115R(2) ceased to reach a distribution - the day after the 31 March 2020 end-date printed in that sub-section. ON THE TEXT AND ITS CORROBORATION. Section 115R has been read in full from a consolidation of 2026 vintage under the heading 'Tax on distributed income to unit holders', and sub-sections (1) and (2) with all three provisos have been read independently, word for word, from a consolidation of 2025 vintage; the two agree. Sections 115S and 115T have been read from consolidations of 2026 vintage under the headings 'Interest payable for non-payment of tax' and 'Unit trust of India or mutual fund to be an assessee in default', and each was read a second time and came back word-identical, including the five-limb Explanation to s.115T. Those two have not been compared against a second year's version. THE MOST IMPORTANT LIMITATION ON THIS PAGE. The consolidations of ss.115-O, 115P, 115Q, 115R, 115S, 115T and 115BBDA carry no numbered footnote list at all, in any vintage located. So no commencement date and no amending Act number can be sourced from them. Where a date appears in this entry it is either printed in the statutory text itself or bracketed between two consolidations of different vintages, and the entry says which. ON THE THREE PROVISOS, which have three different shapes and are routinely run together. The first proviso is a rate override and not an exemption: an infrastructure debt fund scheme distributing to a non-resident who is not a company, or to a foreign company, is charged at five per cent. The second proviso is a true exemption but only clause (a) survives on the current text, exempting income distributed by the Administrator of the specified undertaking; clause (b) is printed as omitted. The third proviso is a narrow exemption for a specified Mutual Fund in an International Financial Services Centre, on income distributed on or after 1 September 2019. WHAT THAT MEANS IN PRACTICE. Three changes cannot be dated here: the omission of clause (b) of the second proviso to s.115R(2), the insertion of the ten per cent charge on an equity oriented fund in clause (iii) of s.115R(2), and the omission of s.115R(3A). None of those dates is stated on this page, and a practitioner working a pre-2018 year must find the text in force for that year. The dates 31 March 2002, 1 April 1999, 31 March 2020 and 1 September 2019 are printed in the statutory text itself and are reliable. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the text as it stands, distribution by a mutual fund is charged under s.115R(2) at rates that turn jointly on the SEBI class of the fund and on whether the unit holder is an individual or HUF; the charge is confined to income distributed on or before 31 March 2020; the only exemptions are the Administrator limb of the second proviso and the IFSC third proviso, clause (b) of the second proviso being omitted; the base is grossed up under sub-section (2A); and non-payment attracts one per cent monthly interest under s.115S and deemed default under s.115T.
TaxSphere, “Statutory position — s.115R, s.115S and s.115T: tax on income distributed by a mutual fund or UTI, the exemptions in the provisos to s.115R(2), and the deemed assessee in default”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-115r-115s-115t-mutual-fund-distributed-income-tax/ (validity last checked 2026-09-08)
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