Section 10(23D)

Section 10(23D) — the law in short

What the courts have decided on section 10(23D), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• UTI Mutual Fund v ITO High CourtHelps taxpayer
  Can they attach your bank account while the stay application is still pending?
  No. Recovery should not be made pending expiry of the appeal period or disposal of the stay application, and for a reasonable period after — so you can approach a higher forum. Reasonable prior notice must also precede withdrawal from an attached account.
• Dr Rajnikant R. Bhatt v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I work in Abu Dhabi but my family, my home and most of my assets are in India. Can I still be treated as a UAE resident under the treaty and get the concessional rates on my Indian dividends, interest and capital gains?
  Yes, on these facts. The Authority worked article 4 of the India-UAE agreement in order and found the applicant, a radiologist employed at a government hospital in Abu Dhabi, resident of both States under article 4(1), with a permanent home available in both, and a centre of vital interests that could not be determined because his personal ties were in India and his economic interests were in Abu Dhabi. That took the case to the habitual abode test, which pointed to Abu Dhabi, so he was treated as a resident of the UAE. Dividends from Indian companies, and income from Unit Trust of India units and s.10(23D) mutual funds, were taxable at 15 per cent under article 10; interest at 12.5 per cent under article 11; and capital gains on shares, debentures, units and like securities were exempt in India under article 13. The ruling binds only Dr Bhatt.
• Statutory position — s.194K: ten per cent on income in respect of mutual fund units, the ten thousand rupee threshold from 1 April 2025, and why capital gains on units are outside it CBDT Circulars & InstructionsCuts both ways
  My mutual fund has deducted ten per cent under section 194K. Should it be deducting on the redemption proceeds and on my capital gains as well, and what is the threshold now?
  No. The section applies to income in respect of units of a specified mutual fund, or units from the Administrator of the specified undertaking or from the specified company, and the second limb of its proviso says in terms that it does not apply 'if the income is of the nature of capital gains'. The rate is ten per cent, and no deduction is made where the income credited or paid, or likely to be credited or paid, during the financial year does not exceed ten thousand rupees — a figure substituted for five thousand rupees with effect from 1 April 2025.
• Statutory position — ss.196A, 196B and 196C: three fixed-rate deduction sections for non-residents, only one of which carries a treaty proviso, and none of which is in the s.197 list CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  We are remitting income on mutual fund units to a foreign company, and separately paying on Global Depository Receipts. Do we deduct under section 195 at rates in force, and can the payee get a lower deduction certificate?
  No. Where one of these three sections applies, it and not section 195 supplies the rate, and the rate is a figure fixed in the section rather than the 'rates in force'. Section 196A covers income in respect of units of a Mutual Fund specified under clause (23D) of section 10, or from the specified company referred to in the Explanation to clause (35) of section 10, paid to a non-resident not being a company or to a foreign company, at twenty per cent; it alone carries a proviso letting the rate fall to the treaty rate where an agreement under section 90(1) or section 90A(1) applies and the payee has furnished the certificate referred to in section 90(4) or section 90A(4). Section 196B covers income in respect of units referred to in section 115AB, and long-term capital gains on their transfer, payable to an Offshore Fund. Section 196C covers interest or dividends on bonds or Global Depository Receipts referred to in section 115AC, and long-term capital gains on their transfer, payable to a non-resident. Sections 196B and 196C each now carry a three-limb rate: ten per cent on the income, ten per cent on long-term capital gains where the transfer takes place before 23 July 2024, and twelve and one-half per cent where it takes place on or after that date. None of the three sections is in the list in section 197(1).
• Statutory position — the proviso to s.57: only interest, capped at twenty per cent of the dividend, from AY 2021-22 CBDT Circulars & InstructionsCuts both ways
  Dividends are taxable in my hands again. What can I actually deduct against dividend income, and is there a limit?
  Only interest expense, and not more than twenty per cent of the dividend income included in your total income for that year computed without this deduction. The proviso to s.57 was inserted by the Finance Act 2020 with effect from 1 April 2021, so it applies from AY 2021-22 onwards; the same amendment substituted the word 'dividends' in clause (i) for 'dividends, other than dividends referred to in section 115-O', which is what brought ordinary dividends back into the shareholder's assessment.
• 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 CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  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.
• Statutory position — how DDT was abolished: the end-date written into s.115-O(1), s.115R(2) and s.115BBDA(1), and the withholding that replaced it under s.194 and s.194K CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  Everyone says DDT was abolished in 2020. Which provision actually did it, from what date, and what withholding took its place on dividend and on mutual fund income?
  No section was repealed. The abolition was done by writing an end-date into the charging words themselves: s.115-O(1) now charges only dividend declared, distributed or paid 'on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020'; s.115R(2) charges only income distributed by a specified company or Mutual Fund 'on or before the 31st day of March, 2020'; and s.115BBDA(1) reaches only dividend 'declared, distributed or paid by a domestic company or companies on or before the 31st day of March, 2020'. Dividend then fell to be taxed in the shareholder's hands, with withholding revived under s.194 for dividend paid by a company and s.194K for income in respect of mutual fund units, both at ten per cent.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.