Ch.8 · Capital Gains Tax on Mutual Funds · hard
What is the tax treatment of IDCW reinvestment vs IDCW payout option?
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EXPLANATION
Whether IDCW is paid out or reinvested, the tax treatment is identical — the distribution amount is taxable at the investor's slab rate. TDS is also deducted on reinvested distributions. For IDCW reinvestment, the AMC calculates the distribution, pays tax (deducts TDS), and then reinvests the net (post-TDS) amount to purchase additional units. The gross distribution is the taxable amount in both payout and reinvestment options.
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