Section 115R of ITA, 1961 : Section 115R: Tax On Distributed Income To Unit Holders

Explanation using Example

Imagine a scenario where a Mutual Fund company, "Prosperity Funds," decides to distribute a part of its profits to its unit holders. This distribution is known as "income distribution." For the financial year, the mutual fund has three types of funds: an equity-oriented fund, a money market mutual fund, and a debt fund.

Under Section 115R of the Income-tax Act, 1961, "Prosperity Funds" must pay an additional income-tax on the distributed income. The rates are as follows:

• For the equity-oriented fund, if they distribute income to their unit holders, they are liable to pay an additional income-tax of 10% on the distributed income.
• For the money market mutual fund, if the income is distributed to an individual or a Hindu undivided family (HUF), the tax rate is 25%. However, if distributed to any other entity, like a corporation, the tax rate is 30%.
• For the debt fund, if it's not a money market or equity fund, and the distribution is to an individual or HUF, the tax rate is 25%. If the distribution is to any other person, like a partnership firm, the tax rate is 30%.

"Prosperity Funds" must deposit the additional income-tax to the credit of the Central Government within 14 days from the date of distribution or payment of such income, whichever is earlier. Also, they cannot claim any deduction for this income under any other provision of the Income-tax Act.