Section 115T of the Income-tax Act, 1961: Mutual Fund or Specified Company as Assessee in Default
Section 115T of the Income-tax Act, 1961 deals with the consequences of failing to pay tax on distributed income under Section 115R. It provides that the person responsible for payment and the specified company or mutual fund may be treated as an assessee in default, enabling collection and recovery of unpaid tax. This provision is especially relevant to legacy mutual fund distribution-tax liabilities.
What does Section 115T provide?
Under Section 115T, where a person responsible for paying income distributed by a specified company or a mutual fund, or the specified company or mutual fund itself, fails to pay tax referred to in Section 115R(1) or 115R(2), that person or entity is deemed to be an assessee in default in respect of the tax payable. The statutory machinery for collection and recovery of income tax then applies.
The provision concerns tax on distributed income payable by the fund or specified company under the historical distribution-tax system. It does not mean that every investor who receives a mutual fund distribution is an assessee in default.
When can a default arise?
- A tax liability arose under the applicable provisions of Section 115R for a relevant distribution.
- The responsible person, specified company or mutual fund did not pay the whole or applicable part of that tax.
- The unpaid amount remains recoverable under the law governing that period, subject to applicable proceedings and limitations.
Once the statutory conditions are met, the recovery provisions of the Act may be invoked. Whether any specific notice, assessment, interest or recovery measure is valid depends on the facts and the applicable law.
Important change from 1 April 2020
Before 1 April 2020, Section 115R imposed an additional tax on certain income distributed by specified mutual funds and the specified company. The Finance Act, 2020 changed the taxation of distributions so that the distribution-tax regime ceased to apply to income distributed on or after 1 April 2020. Distributions are instead examined under the investor-level tax provisions applicable to the relevant year, including withholding provisions where applicable.
Example: If a mutual fund had an unpaid Section 115R liability relating to a distribution made before 1 April 2020, Section 115T may still be relevant to its recovery. A distribution made after the distribution-tax regime ended does not, merely because it was distributed, generate a new Section 115R distribution-tax liability.
Definitions in the Explanation to Chapter XII-E
Mutual fund
A mutual fund specified under Section 10(23D) of the Income-tax Act, 1961.
Equity-oriented fund
As defined by reference to the Explanation to Section 112A, together with the Unit Scheme, 1964, as provided in the historical Chapter XII-E definition. Eligibility is determined by the statutory conditions relevant to the year.
Unit Trust of India
The Unit Trust of India established under the Unit Trust of India Act, 1963. The historical Chapter XII-E provisions also refer to the specified company defined in Section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
Money market mutual fund
A money market mutual fund as defined under the SEBI (Mutual Funds) Regulations, 1996, as referred to by the historical statutory text.
Liquid fund
A mutual fund scheme or plan classified as a liquid fund by the Securities and Exchange Board of India under its applicable guidelines or regulations.
Section 115R and Section 115T: the distinction
| Provision | Purpose |
|---|---|
| Section 115R | Imposed tax on specified distributed income under the former distribution-tax regime. |
| Section 115S | Provided for interest on delayed payment of tax under the former regime. |
| Section 115T | Deemed the responsible person, specified company or mutual fund to be an assessee in default for unpaid Section 115R tax. |
Legislative background
The original text of this page reflects the amendments substituting references to the specified company under the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, effective 1 April 2003; amendments to the definition of equity-oriented fund, including the Finance Act, 2018 change effective 1 April 2018; and insertion of the money market mutual fund definition effective 1 April 2007. These historical references remain useful when examining liabilities for earlier years.
Practical compliance considerations
- Identify the date and nature of the distribution and whether Section 115R applied to it.
- Check the applicable version of the Act, payment records and any statutory demand.
- Distinguish legacy distribution-tax obligations from investor taxation after 1 April 2020.
- Review interest and recovery provisions separately; Section 115T itself establishes default and recovery consequences.
- For tax years governed by the Income-tax Act, 2025, consult the new Act and its transitional rules rather than assuming the old section number continues unchanged.
Frequently asked questions
Is Section 115T still relevant after 2020?
Yes, it can remain relevant to unpaid liabilities arising under the former Section 115R regime. It does not impose the former distribution tax on new distributions made after that regime ended.
What is an assessee in default?
It is a person or entity treated by the law as having failed to discharge a specified tax obligation, making statutory collection and recovery procedures available.
Does Section 115T impose tax on mutual fund investors?
No. Section 115T concerns default in payment of the former distribution tax. The tax treatment of investors is determined separately under the applicable provisions for the relevant year.
Official legal references
- Income Tax Department: Income-tax Act, 1961 (historical provisions and amendments).
- Income Tax Department: official tax portal.
- India Code: central legislation, including the Finance Act, 2020 and Income-tax Act, 2025.
- Securities and Exchange Board of India: mutual fund regulations and circulars.
This article is an explanatory guide. For a historical liability, the text of the law in force during the relevant period and any applicable savings or transitional provisions take precedence.