Section 194LBC of ITA, 1961 : Section 194Lbc: Income In Respect Of Investment In Securitization Trust

Explanation using Example

Imagine a scenario where Mr. Sharma, a resident of India, has invested in a securitisation trust which deals with pooling various loans and creating securities that investors can buy. The trust generates income through interest payments on the loans. As per Section 194LBC of the Income-tax Act, 1961, when the securitisation trust decides to distribute the income earned to its investors, it must deduct tax at source before making the payment to Mr. Sharma.

For example, if the trust owes Mr. Sharma an income of INR 100,000, the trust, being the entity responsible for making the payment, must deduct tax at the rate of 25% because Mr. Sharma is an individual. Therefore, the trust will deduct INR 25,000 as tax and pay Mr. Sharma the remaining INR 75,000.

This ensures that the appropriate taxes are collected at the source, and Mr. Sharma receives the income after the tax deduction. It also helps in preventing tax evasion and ensures compliance with the tax laws of India.