The recent Finance Bill, has however, proposed the abolition of the distribution tax of 10 per cent on companies and mutual funds on the dividends or income distributed by them. Such income will henceforth be taxed in the hands of the recipients at the rates applicable to them and subject to TDS.
The dividend tax exemption available to the equity-oriented mutual funds, however, is withdrawn and the dividends will be taxable in the hands of the recipients at 10 per cent. This move has to some extent reduced the disadvantages faced by the debt-oriented funds.