The provisions relating to TDS on income distributed by business trusts have been restructured under the Income-tax Act, 2025. The earlier Section 194LBA of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 4(ii)], effective from 1st April, 2026.
This restructuring introduces a tabular classification for income distributed by business trusts while continuing the existing provisions governing deduction of tax on such income.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 4(ii)
- Nature of Payment: Income in the form of interest or dividend from units of a business trust to a resident unit holder
- Earlier Section (IT Act 1961): Section 194LBA
- Return Form: 26Q
- Code (for return filing):
- 1014 – Interest income
- 1015 – Dividend income
Applicability of TDS on Income from Business Trust
TDS is required to be deducted by a business trust on income distributed to its unit holders. The provision applies to income of the nature referred to under Section 10(23FC) and Section 10(23FCA), depending on the type of income distributed.
Nature and Classification of Income
- Interest income received or receivable from a Special Purpose Vehicle – Schedule V [Table: Sl. No. 3.B(a)]
- Dividend income received from a Special Purpose Vehicle – Schedule V [Table: Sl. No. 3.B(b)]
- Income from renting, leasing or letting of real estate assets – Schedule V [Table: Sl. No. 4]
Deductor and Deductee
- Deductor: Business Trust
- Deductee: Resident unit holder
Time of Deduction
- At the time of credit of income, or
- At the time of payment
Rate of TDS
- 10% on interest income
- 10% on dividend income
If PAN is not furnished, TDS shall be deducted at 20%
Threshold Limit
- No threshold limit
- TDS applies on entire income
TDS for Non-Resident Unit Holders
- Interest income – 5%
- Dividend income – 10%
- Renting income – Rates in force
Important Notes
- TDS is deducted at the time of income distribution
- Income classification determines applicable TDS rate
- Income under Schedule V [Table: Sl. No. 3.B] is taxable in the hands of the unit holder
Additional Applicability for Non-Residents (As per IT Act 2025)
| Nature of Payment | Previous Section (IT Act 1961) | New Section Reference | Rate | Remarks |
|---|---|---|---|---|
| Any distributed income referred to in section 223, being of the nature referred to in Schedule V [Table: Sl. No. 3.B(a)] | Section 194LBA(a) | 393(2) [Table: Sl. No. 6.E(a)] | 5% | Specific category of distributed income |
| Any distributed income referred to in section 223, being of the nature referred to in Schedule V [Table: Sl. No. 3.B(b)] | Section 194LBA(b) | 393(2) [Table: Sl. No. 6.E(b)] | 10% | Higher rate for specified income category |
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