Section 194LBA of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on specific income distributed by business trusts (like REITs and InvITs) to their unit holders. Below is a detailed breakdown of its provisions, rates, and compliance requirements:
1. Applicability of Section 194LBA
✅ Covered Payments:
- Interest incomefrom Special Purpose Vehicles (SPVs) [Section 10(23FC)(a)].
- Dividend income(if taxable in the hands of unit holders) [Section 10(23FC)(b)].
- Rental income(for REITs) or infrastructure income (for InvITs) [Section 10(23FCA)].
❌ Exemptions:
- Income exempt under Section 10(23FC)(b)if the SPV opts for concessional tax under Section 115BAA.
- Payments to resident companies(excluded from TDS under this section).
2. TDS Rates & Deduction Rules
| RECIPIENT | INCOME TYPE | TDS RATE |
| Resident Individuals/HUFs | Interest/Rental income | 10% |
| Non-Residents | Interest income [Section 10(23FC)(a)] | 5% |
| Non-Residents | Dividend/Rental income [Section 10(23FC)(b)/(23FCA)] | 10% or DTAA rate |
| PAN Not Provided | 20% (under Section 206AA) | – |
Example:
- A resident unit holderreceives ₹1 lakh as rental income → TDS (10%): ₹10,000.
- A non-residentreceives ₹2 lakh as interest → TDS (5%): ₹10,000.
3. Key Compliance Requirements
- Deductor: The business trust(REIT/InvIT) must deduct TDS at the earlier of:
- Credit to the unit holder’s account.
- Actual payment (cash/cheque/electronic).
- Deposit Deadline: By the 7th of the next month(March: April 30) via Challan 281.
- TDS Returns:
- Form 26Q(for residents).
- Form 27Q(for non-residents).
- TDS Certificate: Issue Form 16Ato unit holders.
4. Special Provisions
- Pass-Through Status: Income retains its character (e.g., interest remains interest) when distributed to unit holders.
- DTAA Benefits: Non-residents can claim lower TDS rates under tax treaties by submitting a Tax Residency Certificate (TRC).
- No Threshold: TDS applies irrespective of the amount(unlike other sections like 194A).
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
Key Points
🔹 Residents: 10% TDS on interest/rental income; Non-residents: 5% (interest) or 10% (dividend/rental).
🔹 Business trusts must file Form 26Q/27Q quarterly.
🔹 DTAA benefits can reduce TDS for non-residents.
🔹 No TDS if SPV opts for Section 115BAA
