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

Any person who gives income to an investor with respect to investment in securitization trust is required to deduct tax under this section.

2) When to Deduct TDS under Section 194LBC?

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).

TDS on Income in Respect of Investment in Securitization Trust

3) Rate of TDS under Section 194LBC

a. 25% (if the payee is resident Individual & HUF) (18.75% w.e.f. 14.05.2020 to 31.03.2021)

b. 30% (if the payee is resident other than individual or HUF) (22.50% w.e.f. 14.05.2020 to 31.03.2021)

At the rates in force [if the payee is non-resident (not being a company) or foreign company]

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

If an Indian company or a business trust pays income by way of interest to nonresident (not being a company) or foreign company, has to deduct TDS under this section.

2) Nature of Payment

♦ Interest payable by an Indian Company or a Business Trust in respect of monies borrowed by it in foreign currency from a source outside India,—

a. under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2023(amended w.e.f. 01.04.2020); or

b. by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or

c. by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2023 (amended w.e.f. 01.04.2020);, as approved by the Central Government in this behalf.

d. in respect of monies borrowed by it from a source outside India by way of issue of any long-term bond or rupee denominated bond on or after the 1st day of April, 2020 but before the 1st day of July, 2023, which is listed only on a recognised stock exchange located in any International Financial Services Centre, and‖;

♦ Interest payable in respect monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2020.

3) When to Deduct TDS under Section 194LC?

At the time of credit of such income to the account of payee or at the time of payment whichever is earlier.

For this purpose, ―payment‖ can be in cash or by issue of a cheque or draft of by any other mode.

4) Rate of TDS under Section 194LC

The rate of tax u/s 194LC is 4%( w.e.f. 01.04.2020)(plus Health & Education Cess @ 4%).

5) Other key points related to section 194LC

Interest does not exceed the amount of interest calculated at the rate approved by Central Government in this behalf after considering the terms of bond or loan and its repayment.

The provisions of section 206AA shall not apply in respect of payment of interest on long-term infrastructure bonds, as referred to in this section.

Extract of Section 194LBC of Income Tax Act, 1961

194LBC. (1) Where any income is payable to an investor, being a resident, in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, the person responsible for making the payment shall, at the time of credit of such income to the account of the 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—

(i) twenty-five per cent, if the payee is an individual or a Hindu undivided family;

(ii) thirty per cent, if the payee is any other person.

(2) Where any income is payable to an investor, being a non-resident (not being a company) or foreign company, in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, the person responsible for making the payment shall, at the time of credit of such income to the account of the 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 rates in force.

Explanation.—For the purposes of this section,—

(a) “investor” shall have the meaning assigned to it in clause (a) of the Explanation occurring after section 115TCA;

(b) 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.

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