Uti To Pass On Only 11% Dividend Tax

The Unit Trust of India (UTI) has decided to pass on only the incremental 11 per cent dividend tax on its assured return, monthly income schemes to investors.

The fund will absorb the remaining 11 per cent of the 22 per cent dividend tax which has been imposed by the government on debt-oriented schemes.

P S Subramanyam, chairman, UTI, said, "We have done a quick survey of investor opinion on this issue and the response has been favourable to the proposal to pass down the additional 11 per cent tax to them. The remaining 11 per cent will be absorbed by UTI, as it did last year."

 

Assured returns to investors, which fall due in June-July, would be made minus the 11 per cent tax proposed to be deducted. "Earlier when the government had imposed an 11 per cent dividend tax for the first time, UTI absorbed it and paid out the full assured return. This time, with the tax being increased to 22 per cent, it is no longer for it to absorb the entire impact", he added.

It is understood that the Securities and Exchange Board of India (Sebi) has decided to seek legal opinion on UTI's proposed move and is yet to take a final decision on the matter. According to the UTI chairman, "The regulator cannot really prevent UTI from passing on the additional tax to investors. It is a foregone conclusion." Sebi officials were not available for comment.

Last year's budget had imposed an 11 per cent tax for the first time, but according to fund analysts, UTI had been able to bear the burden of the tax on account of the buoyancy in the equity markets during the greater part of the year. This had helped it to generate enough resources to wipe out the deficits created in the reserves and surplus of many of its equity schemes.

The additional resources had also helped the fund to put up a buffer against falling interest rates. The situation has changed now with the equities markets turning choppy again and returns becoming unreliable, analysts said.