Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]
When is the tax to be deducted under section 194LBB?
The tax shall be deducted at the time of payment or credit whichever is earlier.
Rate of TDS under section 194LBB
(a) Where such income is payable by an investment fund to its unit holder being a resident —
The rate of TDS shall be 10% of such income.
No surcharge or education cess shall be added to the above rate.
Note.—
1. The rate of TDS will be 20% in the above case, if PAN is not quoted by the deductee.
2. Tax cannot be deducted at lower rate. Hence, section 197 shall not be applicable in this case.
(b) Where such income is payable by an investment fund to its unit holder being a non-resident, not being a company or a foreign company —
at the rate in force.
Surcharge, wherever applicable plus education cess and SHEC shall be added to the above rate.
Rate of TDS deduction –
TDS shall be deducted at following rates –
| Rate of TDS | Residential status of the |
| 10% | Resident |
| 30% | Non-resident (not being a company) or a foreign company |
1. Explanation.—For the purposes of this section,—
1. “unit” shall have the meaning assigned to it in clause (c) of the Explanation 1 to section 115UB; “unit” means beneficial interest of an investor in the investment fund or a scheme of the investment fund and shall include shares or partnership interests. [Clause (c) of the Explanation 1 to section 115UB]
2. 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 accordingly.
2. Meaning of investment fund [Clause (a) of Explanation 1 to section 115UB]:
“Investment fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992.
1. Income referred to in section 10(23FBB):
It means any income referred to in section 115UB, accruing or arising to, or received by, a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “Profits and gains of business or profession”.
Author Bio
how is income earned through investment unit be reported?
Hi Mohit,
Thanks for sharing this article. I have a question related to TDS in an AIFs. Suppose I have made an investment in a Private Fund that has been deducting TDS on the income they allocated to me for the last three years. Now, I would like to transfer my commitment to a friend who is an NRI. So far, the Fund has not distributed any income to me. They have been allocating the income each year and depositing TDS in my name. If I transfer the Fund, all my income will be distributed to my NRI friend. In this case, should he be paying any tax on the income when it is distributed to him as his TDS rates are different? And how will he do the calculation as I already paid TDS on the income. Could you please advice along with reference of applicable laws. Thanks, Manjul
Hi,
Though the income is not distributed by form of cash, since the income is accrued to you, TDS has been deducted and will be reflecting in your 26AS accordingly. This is similar to TDS on Fixed Deposits where interest is accrued but not paid to you. You should include the same in your tax return and pay taxes accordingly including differential taxes if any. If you are however following cash basis of accounting, you can carry over the TDS and declare once the returns are distributed. However, in your case, since you are transferring to your friend (assuming at investment price), you can claim refund of the same. Your friend need to consider the same as income once he receives later.