Section 194LBB of Income Tax Act 1961 – Payment of Certain specified income to a unitholder of units in an investment fund
| Section | 194LBB |
| Particulars | Income in respect of units of investment fund |
| Type of business | Individual, resident |
Introduction to Section 194LBB of Income Tax Act
Section 194LBB of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) specifies that if any income is distributed to unit holders in respect of units of an investment fund and which is not taxable under the head of “Profits and Gains from Business or Profession”, they are to be taxed at a specified rate. Under this section, tax will be deducted irrespective of the residential status of the person receiving such income..
Who is liable to TDS under Section 194LBB?
As per Section 194LBB, the following parties are required to deduct TDS at the time of payment
- anyone in charge of paying out income from Investment Fund units;
- unit holders, irrespective of their residential status
Rate of TDS under Section 194LBB of Income Tax Act
1. Resident
TDS is required to be deducted at the rate of 10%. Surcharge or Health and Education Cess will not be added to these rates.
2. Non-Resident or foreign company
The rate at which tax will be deducted shall be as under, where the payee is a non-resident (not being a foreign company) or a foreign company: –
- In respect of income in the nature of dividend, @ 20%;
- At the rates in force, in case of Other Income;
- No TDS if income is exempt in the hands of the recipient.
In addition, the applicable Surcharge and Health and Education Cess will be added to the tax rate.
If the deductee doesn’t provide his PAN to the deductor, tax will be deducted under Section 206AA at the rate of 20%. If the deductee has not filed their applicable tax return for a specified period, then tax will be deducted at the rate prescribed under Section 206AB.
Timing of Deduction of TDS under Section 194LBB
As per Section 194LBB, tax must be deducted at the time of payment or credit of income to the account of the payee, whichever is earlier.
Exemption from TDS under Section 194LBB of Income Tax Act
No TDS will be deducted from payment to the Government, the RBI, a mutual fund, or a corporation set up under the Actsince such income is exempt from tax in their hands..
