Section 194LBC of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on income distributed by Securitisation Trusts (STs) or Category III Alternative Investment Funds (AIFs) to investors. Below is a structured breakdown of its provisions:
1. Applicability of Section 194LBC
✅ Covered Payments:
- Income distributed by Securitisation Trusts(e.g., from loan pools, asset-backed securities).
- Income from Category III AIFs(hedge funds, PIPE funds).
- Includes:
- Interest income
- Dividends(if taxable)
- Other income(excluding capital gains).
❌ Exemptions:
- Capital gains(taxed separately under capital gains provisions).
- Income already taxed at the trust level(e.g., dividends from Indian companies).
2. TDS Rates & Thresholds
| INVESTOR TYPE | TDS RATE (PAN PROVIDED) | TDS RATE (PAN NOT PROVIDED) |
| Resident Individuals/HUFs | 10% | 20% |
| Resident Companies | 10% | 20% |
| Non-Residents | 10% or DTAA rate (if lower) | 20% |
| Threshold | No minimum limit (TDS applies on all amounts). |
Example:
- Income Distributed: ₹8 lakh to a resident individual (PAN provided).
- TDS (10%): ₹80,000 → Net Payment: ₹7.2 lakh.
3. Who Deducts TDS?
- Trustee/Managerof the Securitisation Trust or Category III AIF.
- Due Date for Deduction: At the earlier of:
- Credit to investor’s account.
- Actual payment (cash/cheque/electronic).
4. Compliance Requirements
- TDS Deposit: By the 7th of the next month(March: April 30) via Challan 281.
- TDS Return:
- Form 26Q(for resident investors).
- Form 27Q(for non-resident investors).
- TDS Certificate: Issue Form 16Ato investors.
5. Key Exceptions
- No TDSif income is exempt (e.g., dividends from Indian companies).
- Lower TDS under DTAA: Non-residents can submit Tax Residency Certificate (TRC)for treaty benefits.
6. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
7. Key Takeaways
🔹 10% TDS on income from Securitisation Trusts/Category III AIFs (excluding capital gains).
🔹 PAN Mandatory to avoid 20% deduction.
🔹 No threshold – TDS applies even on small amounts.
🔹 Quarterly Filing: Use Form 26Q/27Q.
