Section 194LB of ITA, 1961 : Section 194Lb: Income By Way Of Interest From Infrastructure Debt Fund

Explanation using Example

Imagine a foreign investor, John, who is a citizen of the United Kingdom and does not run a company. John has invested in an Indian infrastructure debt fund that specifically finances infrastructure projects in India. This debt fund is recognized under the Income-tax Act, 1961. In the fiscal year, the fund declares an interest payment to John. According to Section 194LB of the Income-tax Act, when the fund distributes this interest income to John, they are required to deduct tax at the source at the rate of 5% before making the payment to him. This means if the interest income is ₹100,000, the fund will deduct ₹5,000 as tax and pay John ₹95,000. The deducted amount is then paid to the Indian government as part of John's tax liability in India.