Will there be a distribution tax also on mutual funds under the Direct Taxes Code (DTC)?

Suresh Katpalia, Mysore

As it is, the dividend from mutual funds is tax-free in the hands of the unit-holders with the mutual fund having to pay distribution tax. In other words, mutual fund investment is treated on a par with direct investment in shares.

The DTC has surprisingly exempted both mutual funds and the unit-holders from taxation by conferring exemption to both vide separate schedules. In the event, dividend from mutual funds would neither be subject to distribution tax nor taxed in the hands of the unit-holders. Of course, this could not have been the intention. One hopes this anomaly would be set right before the Bill is introduced in Parliament.