The provisions relating to TDS on income from investment funds have been restructured under the Income-tax Act, 2025. The earlier Section 194LBB of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 4(iii)], effective from 1st April, 2026.
This restructuring introduces a tabular classification for income distributed by investment funds while retaining the existing provisions relating to deduction of tax at source on such income.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 4(iii)
- Nature of Payment: Income, other than exempt income, in respect of units of an investment fund payable to a unit holder
- Earlier Section (IT Act 1961): Section 194LBB
- Return Form: 26Q and 27Q
- Code (for return filing): 1017
Applicability of TDS on Investment Fund Income
TDS is required to be deducted on income distributed by an investment fund to its unit holders, other than the proportion of income which is exempt under applicable provisions. The responsibility to deduct tax lies with the investment fund making such distribution, and the provisions apply to the unit holder receiving such income.
Time of Deduction
- At the time of credit of income to the account of the unit holder, or
- At the time of payment by cash, cheque, draft or any other mode
Rate of TDS
- 10% in case of resident unit holder
- For non-residents: rates in force under the Income-tax Act
- 20% if PAN is not furnished, as per applicable provisions
Threshold Limit
- No threshold limit
- TDS is applicable on the entire income
Exception
- Income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF) from investment in a Venture Capital Undertaking (VCU) is exempt under Schedule V [Sl. No. 6]
Important Notes
- TDS applies only on income which is not exempt
- Exempt income is governed by separate provisions under the Act
- Investment fund is responsible for deduction before distribution
Additional Applicability for Non-Residents (As per IT Act 2025)
| Nature of Payment | Previous Section (IT Act 1961) | New Section Reference | Rate | Remarks |
|---|---|---|---|---|
| Any income, other than that proportion of income which is exempt under Schedule V [Table: Sl. No. 2], in respect of units of an investment fund specified in section 224 | Section 194LBB | 393(2) [Table: Sl. No. 8] | 10% – Resident 35% – Non-resident company 30% – Non-resident other than company | Covers taxable portion of income from investment fund |
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