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Dividend Tax Under DTC

The dividend option of mutual funds will not be as attractive after the DTC comes into effect…

I have invested in Templeton India Growth fund dividend option plan reinvestment. With the new tax code from 2012, the dividend is supposed to be taxed @ 5%. What are my options to save on this tax?
- Ganesh Kamath

Investing in the dividend option of mutual funds is popular as it provides regular income which so far is being treated as tax free income. You are right in your observation and once the direct tax code comes into play from April 1, 2012, the dividend option will attract a 5 per cent tax. Moreover, in recent times Sebi has directed all mutual funds to calculate dividends from realized gains and not on pre-defined times each year is correct, which will reduce the dividend payout. To counter this development, it is advisable for you to move to the growth option and redeem your holding units to meet your income needs. As these will be long-term capital gains, you would at least not pay tax on the gains.

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