Section 194F: TDS on Repurchase of Mutual Fund and UTI Units - Omitted
Section 194F of the Income-tax Act, 1961 previously required tax deduction at source (TDS) on certain payments relating to repurchase of units by a mutual fund or the Unit Trust of India (UTI). The provision was omitted with effect from 1 October 2024 by the Finance (No. 2) Act, 2024. The earlier 20% deduction rule should therefore not be presented as a current obligation.
What did Section 194F cover?
The section dealt with payments described in section 80CCB(2), concerning specified units acquired under the historical equity-linked savings scheme provisions. It was a targeted withholding rule, not a general TDS requirement on every redemption of mutual fund units.
For this purpose, repurchase means the acquisition of units back from a holder by the relevant fund or institution. The relevant transaction and its tax treatment must be distinguished from distributions of income from units.
Historical wording and 20% TDS rule
Before omission, section 194F required the person responsible for paying an amount referred to in section 80CCB(2) to deduct income-tax at 20% at the time of payment. The section was inserted by the Finance Act, 1990, with effect from 1 April 1991.
This is a summary of the former law for historical and transitional reference only. The 20% rate under section 194F must not be applied to payments made on or after 1 October 2024 solely by reason of that omitted section.
Omission effective 1 October 2024
The Finance (No. 2) Act, 2024 omitted section 194F with effect from 1 October 2024. The Income Tax Department's official section history confirms the effective date and reproduces the earlier text. The Department's TDS rates reference also identifies the section as inapplicable from that date.
Are mutual fund repurchases now free from tax?
No. Removal of this particular TDS obligation does not by itself exempt redemption gains from income tax. Depending on the nature of the units, acquisition date, holding period, residential status and applicable law, redemption or repurchase may give rise to taxable capital gains or other income.
Other tax deduction provisions may be relevant to distributions, non-resident payments or different transactions. A fund, payer or investor should assess the actual character of the payment instead of treating omission of section 194F as a blanket exemption.
Illustration
Suppose a specified unit repurchase payment of Rs. 50,000 would historically have fallen within section 194F. Under the former provision, the TDS amount would have been Rs. 10,000. For a payment after 30 September 2024, section 194F itself no longer requires that deduction; any tax on the transaction and any other applicable withholding must be considered separately.
Position under the Income-tax Act, 2025
The Income-tax Act, 2025 applies from 1 April 2026. Because section 194F had already been omitted in 2024, there is no direct replacement TDS provision for the former section 194F in the new Act. The new legislation contains separate rules concerning capital gains, including provisions addressing historical section 80CCB units; those rules should not be confused with reinstatement of the omitted 20% TDS requirement.
Frequently asked questions
Is Section 194F applicable in 2026?
No. It was omitted with effect from 1 October 2024.
Was the TDS rate under Section 194F 20%?
Yes, historically. The rate was 20% before the section was omitted; it is not a current rate under section 194F.
Does the omission remove capital gains tax?
No. The omission concerns a particular deduction-at-source requirement. Taxability of a repurchase or redemption is determined independently under the applicable charging and computation provisions.
Does Section 194F apply to all mutual fund redemptions?
No. Even before its omission, its scope was confined to payments referred to in section 80CCB(2).
Official legal references
Income Tax Department: Section 194F and omission note
Income Tax Department: TDS rates and applicability notes
Income-tax Act, 2025 - official text (PDF)
Legal information is general in nature. Historical liabilities, transitional cases and the taxation of particular units depend on their facts and the law applicable to the relevant tax year.