Section 194LBA of ITA, 1961 : Section 194Lba: Certain Income From Units Of A Business Trust

Explanation using Example

Imagine a business trust in India, which operates a portfolio of real estate properties. This trust distributes rental income to its investors, who are unit holders. One of the unit holders, Mr. Sharma, is a resident of India. According to section 194LBA(1) of the Income-tax Act, 1961, when the trust distributes the income to Mr. Sharma, it must deduct tax at the rate of 10% from the distributed income before crediting it to his account or paying it to him.

Now, consider that another unit holder, Mr. Lee, is a non-resident individual living in Singapore. When the trust distributes the same type of income to Mr. Lee, it is required by section 194LBA(2) to deduct tax at the rate of 5% from the distributed income, reflecting the different tax treatment for non-resident unit holders.

If the business trust distributes any other type of income that falls under clause (23FCA) of section 10 to Mr. Lee or to a foreign company, the tax deduction will be as per the rates in force, which is dictated by section 194LBA(3). This means the tax rate could vary and would be based on the current tax laws applicable to non-resident recipients or foreign companies.