Centre’s decision to hike dividend tax hits income schemes - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  
  • Home
  • Outlook Arena
  • Mar 10, 2000 - Centre’s decision to hike dividend tax hits income schemes

Centre’s decision to hike dividend tax hits income schemes

Mar 10, 2000

The government's decision to hike the dividend tax to 20% has taken its toll on the income schemes of mutual funds that are not exempt from such a tax (schemes that invest over 51% of their corpus in equities are exempt from such a tax). Industry sources have pointed out that the income schemes are witnessing a rise in redemption even as fresh inflows have reduced. This has led to some funds offloading stock in the market to meet liquidity requirements.

The Unit Trust of India, the largest domestic mutual fund, is reported to be considering novel ways of getting around this dividend tax. Among the measures is a proposal to do away with dividend payments. Instead the fund proposes to generate income for unit holders by buying back a portion of their units from time to time (in lieu of dividend).

The centre’s decision to hike the dividend tax and abolish sections 54EA and 54EB in their present forms has expectedly sounded the death knell for the domestic mutual fund sector. That the abolition of section 54 was not desirable has been aptly stated by a respected industrialist who reasoned that the National Highways Authority of India (NHAI) has over Rs 50 bn in funds of which only Rs 4 bn have been disbursed. Therefore the need to direct more funds into these bodies is unwarranted. The NHAI is one of two bodies whose debt instruments are now qualify for tax benefits under section 54.

The recent provisions have also affected sentiment in the stock markets, which have rightly anticipated selling pressure from the mutual fund sector. These proposals of the government have made the mutual fund sector vulnerable to increasing redemption pressure (income funds) and a slowdown in fresh inflows (income and equity funds). The government needs to take corrective measures at the earliest.

Equitymaster requests your view! Post a comment on "Centre’s decision to hike dividend tax hits income schemes". Click here!


More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

The Indian Real Estate Party Has Just Begun (Profit Hunter)

Apr 1, 2021

A favourable demand supply scenario makes a strong case for real estate prices.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

The Dilemma of Investing in Bharti Airtel Views On News (Views On News)

Apr 1, 2021

Rahul Shah on whether Bharti Airtel will emerge as the next big thing in the Indian stock market


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms