Income in respect of units of investment fund
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,—
(i) at the rate of ten per cent, where the payee is a resident;
(ii) at the rates in force, where the payee is a non-resident (not being a company) or a foreign company:
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,—
(a) “unit” shall have the meaning assigned to it in clause (c) of the Explanation 1 to section 115UB;
(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.
Understanding section 194LBB of Income Tax Act 1961
Section 194LBB of the Income Tax Act, 1961 deals with the deduction of income tax from certain payments made to unit holders of specified investment funds. Let’s break down this section in simpler terms:
1. Who Does it Apply to?
- This section applies when any income, except for income similar to what’s mentioned in clause 23FBB of section 10, is paid to a unit holder of a specific investment fund mentioned in Explanation 1 to section 115UB(a).
2. When to Deduct Tax?
- The person responsible for making the payment should deduct income tax at the time they credit the income to the payee’s account or when they make the payment, whichever comes first.
3. Tax Rates:
- If the payee is a resident of India, tax should be deducted at a rate of 10%.
- If the payee is a non-resident (not a company) or a foreign company, tax should be deducted at the rates specified by the tax authorities.
4. Exception:
- If the payee is a non-resident (not a company) or a foreign company, no tax deduction is required for income that is not taxable under the Income Tax Act.
Explanation:
- The term “unit” refers to what’s defined in Explanation 1 to section 115UB.
- If the income is credited to any account in the payer’s books, it’s considered as being credited to the payee, and this section’s provisions apply accordingly.
Example:
- Let’s say you are a resident individual in India, and you have invested in a specific mutual fund. If this fund pays you income, the fund manager should deduct 10% of that income as income tax and then credit the remaining amount to your account.
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