Section 194LBC of Income Tax Act, 1961

Introduction 

Section 194LBC provides for the Tax Deducted at Source (TDS) concerning investment in the securitization trust. The article tends to provide a holistic approach and the applicable TDS rate for this provision as per the Income Tax Act, 1961.  

What is Section 194LBC of the Income Tax Act, 1961?  

Any person required to pay any income on any investment made by a resident or non-resident in a securitization trust is required by this section to deduct TDS at the moment the investor’s account is credited with the income or at the time the investor is paid, whichever occurs first. 

Applicability of Section 194(1) LBC 

The terms of section 194LBC(1) is applicable where such income is payable to a resident investor for an investment in a securitization trust. 

What is the rate of TDS? 

The TDS rate under Section 194LBC (1) is as follows:  

1. TDS rate of 25% – In case the payee is an individual or Hindu Undivided Family (HUF) 
2. TDS rate of 30% – In case the payee is a person other than individual or HUF 

This also includes surcharge and cess.  

Applicability of Section 194LBC (2) 

The terms of section 194LBC(2) is applicable where such income is payable to a: 

1. Non-resident investor (except a company), or 
2. Foreign Company 

For an investment in a securitization trust.  

Rate of TDS under Section 194LBC(2) 

In such a case, the rate of TDS will the rates in force at that point of time, i.e.:  

1. TDS at the rate of 30% – In case of Non-resident investor (not a company) 
2. TDS at the rate of 40% – In case of Foreign Company 

This will be done by including cess and surcharge. 

Who is an investor under Section 194LBC? 

An investor is a person who holds: 

1. Securitised debt instrument or,  
2. Securities or security receipt issued by the securitisation trust 

Time of deducting TDS under Section 194LBC of the Income Tax Act, 1961  

TDS is required to be deducted at the time –  

• Such sum is credited of such sum to the account of the payee; or  
• Payment is made to the payee in cash or by way of issue of cheque/ draft/ any other mode  

whichever event takes place earlier. 

Deemed application of provisions of TDS under Section 194LBC 

Where the amount is credited to the Suspense Account or any other account in the books of the person who is liable to make payment to the deductee, it will be deemed to have been credited to the account of the payee and the provisions for deduction of TDS under these provisions will apply. 

Deducting Lower Tax Rate 

As per Section 197, if the Assessing Officer is satisfied, it can issue a lower TDS Certificate at a lower TDS rate for the income paid to resident or non-resident investor for securitisation trust. 

Conclusion 

Section 194LBC provides for rate of TDS in case of income payable to a resident or a non-resident investor in the securitisation trust. 

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