Multiple choice

Dividends distributed by mutual funds are

  1. Taxed at source

  2. Taxed in the hands of the investors

  3. Subject to capital gains tax

  4. Tax-free in the hands of the investor
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Dividends from mutual funds are tax-free in the hands of investors in India (under Section 10(35) of the Income Tax Act). The mutual fund pays a dividend distribution tax before distributing, so investors receive the amount tax-free. This policy encourages investment in mutual funds.

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