The Finance Act, 2020 has removed the levy of DDT in the hands of the Mutual Fund and adopted the
classical system of dividend taxation under which the Mutual Funds would not be required to pay DDT.
The dividend shall be taxed only in the hands of the unitholders.

#mutualfunds

w.e.f. April 1, 2020 for FY 2020-21, all types of mutual fund schemes under dividend payout and dividend reinvestment option shall be required to deduct 10% TDS on the dividend income at prescribed rates for all unitholders i.e. resident/non-resident/FII/FPI.

Act provides for a threshold of INR 5,000 in aggregate for the financial year (computed at the PAN level). TDS provisions should not apply in case where the amount of dividend credited / paid does not exceed the threshold limit in a particular financial year.

TDS rate on dividend income credited / paid to non-resident unitholders:
*non-resident unitholders (other than FII/FPI) = 20% (plus applicable surcharge and cess)

*FII/FPI = 20% (plus applicable surcharge and cess)

no threshold limit applicable

TDS rate, in case unitholder has not registered PAN in the folio

*Resident: 20%
*Non-resident: 20% (plus applicable surcharge and cess)

no exemption for a PAN Exempted KYC Reference Number (‘PEKRN’)

The TDS Certificate shall be generated on the TRACES portal by the Mutual Fund and issued to the unitholders on a quarterly basis as specified under the law.

A person (not being a company or firm) can submit Form No. 15G (15H for Resident Individual aged 60 years or more) to AMC for non-deduction of TDS provided that the tax on his estimated total income (including such dividend received from Mutual Fund) of the financial year is nil.

HDFC Mutual Fund shall deduct TDS from each dividend declared i.e. even without reaching INR 5,000 threshold. In case of total TDS exceeding the actual tax liability of any
investor, he/she can claim refund while filing income-tax return.

https://files.hdfcfund.com/s3fs-public/2020-04/Taxation%20of%20Dividend%20-%20FAQs%20from%20MFs.pdf