New interest proposal to affect fixed income and hybrid plans

THE BUDGET PROPOSAL to remove interest deduction against dividend and mutual fund (MF) income came as a surprise as the industry was expecting some simplification underthe new IncomeTax Act, 2025.

- ANJANA THERESE ANTONY

If the proposal comes into effect, the interest expenditure deduction allowed to the extent of 20% of gross dividend or MFs income will no longer be applicable.

“The removal of this deduction creates a tax drag primarily for schemes where income is distributed or where investors borrow to invest,” said Vaiibhavv Chugh, chief executive officer - mutual fund at Abakkus Investment Managers. Schemes in fixed income and hybrid categories will be mostly affected, he said.