Dividend Distribution Tax on debt funds set to take a toll on retail investors

With the changes effective October 1, 2014, the DDT on debt funds will now be 28.32% for retail individual investors, up from 22.072% they paid earlier. Financial planners feel there is no point for individuals who are in the 10% and 20% tax bracket to opt for the dividend option as it will entail paying higher tax.

Hence, these investors should opt for the growth option in debt funds. However, investors in the highest tax bracket of 30% can still continue to be invested in the dividend option as they pay 28.32% instead of 30.9%.