Section 194LBB | TDS on Income in Respect of Units of Investment Fund

CA.R.S.KALRA | Last updated: 22 February 2021

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Quick Summary

Section 194LBB of the Income Tax Act governs the deduction of Tax Deducted at Source (TDS) on income paid to unit holders of investment funds. The person responsible for paying this income must deduct TDS at the time of crediting the income or making the payment, whichever occurs first. For resident payees, the TDS rate is 10%, while for non-residents (excluding companies), it's at the rates in force, with no deduction if the income isn't taxable.

194LBB. Where any income, other than that proportion of income which is of the same nature as income referred to in clause (23FBB) of section 10 , is payable to a unit holder in respect of units of an investment fund specified in clause (a) of the Explanation 1 to section 115UB , the person responsible for making the payment shall, at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon,-

at the rate of ten per cent, where the payee is a resident;
at the rates in force, where the payee is a non-resident (not being a company) or a foreign company :

TDS on Investment Fund Units: Section 194LBB Explained

Provided that where the payee is a non-resident (not being a company) or a foreign company, no deduction shall be made in respect of any income that is not chargeable to tax under the provisions of the Act.

Explanation.- For the purposes of this section,-

"unit" shall have the meaning assigned to it in clause (c) of the Explanation 1 to section 115UB ;
where any income as aforesaid is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee, and the provisions of this section shall apply

1) Who is responsible to deduct tax u/s 194LBB?

Any person who gives an income (as referred u/s 115UB) to a unit holder in respect of units held in an investment trust has to deduct tax under this section.

2) When to Deduct TDS under Section 194LBB?

The time of deduction is earlier of, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft or another mode).

3) Rate of TDS under Section 194LBB

The rate of tax u/s 194LBB is 10% (if the payee is resident) (7.5% w.e.f. 14.05.2020 to 31.03.2021) and if the payee is non-resident (not a company) or a foreign company then tax will be as per the rates in force during FY.

FAQ :

Section 194LBB deals with the deduction of Tax Deducted at Source (TDS) on income paid to unit holders in respect of units of an investment fund.

Any person who pays income to a unit holder for units held in an investment trust is responsible for deducting TDS under this section.

TDS must be deducted at the earliest of the two times: when the income is credited to the payee's account or when the payment is actually made.

For resident payees, the TDS rate under Section 194LBB is 10%.

For non-resident payees (not being a company) or foreign companies, TDS is deducted at the rates in force. However, no deduction is made if the income is not chargeable to tax.