No deduction on interest, expenses related to dividend, mutual fund income: Budget FY27

Market experts said the proposal would eliminate the existing provision that allowed a deduction for such interest expenses up to a ceiling of 20 per cent of the dividend or mutual fund income.

The government on Sunday proposed removal of deductions for interest expenses related to dividend and mutual fund income. Market experts said the proposal would eliminate the existing provision that allowed a deduction for such interest expenses up to a ceiling of 20 per cent of the dividend or mutual fund income. ''It is proposed to provide that no deduction shall be allowed in respect of any interest expenditure incurred in relation to dividend income or income from units of mutual funds, and to omit the existing provision permitting such deduction subject to a specified ceiling,'' according to the Union Budget 2026-27. This change is part of the Income Tax Act, 2025, which comes into effect on April 1, 2026. Investors would no longer deduct interest costs like interest on loans taken to invest from their dividend or mutual fund income, effectively increasing the taxable amount of such income.

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