Section 194K deals with tax deducted at source on any income which is payable to a resident in respect of units of Mutual Fund specified u/s 10(23D) or of the UTI. TDS shall be deducted @ 10% on payment or credit whichever is earlier. However no TDS will be deducted if the amount does not exceed Rs. 2,500/-.
Income from units under such schemes as may be notified by Central Government is exempt. If such income is payable by the UTI to any institution or to fund where such income is exempt from taxation u/s 10 (22), 10(22A), 10(23),10(23AA), (23C),11 and 12, no TDS is to be made. Further, as per second proviso to this section no deduction is to be made for any such income paid or deducted after 1.4.03.
As Per Section 194K, of the Income Tax Act, 1961-
Income in respect of units.
194K. Where any income is payable to a resident in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, the person responsible for making the payment shall, at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent:
Provided that the provisions of this section shall not apply where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed [two thousand five hundred] rupees:
Provided further that the amount of one thousand rupees shall be computed with reference to the income credited or paid—
(a) in respect of a branch office of the Mutual Fund or of the Unit Trust of India, as the case may be, and
(b) under a particular scheme under which the units have been issued :
Provided also that no deduction shall be made under this section from any such income credited or paid on or after the 1st day of April, 2003.
Explanation.—For the purposes of this section,—
(a) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);
(b) where any income as aforesaid is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.