Investment Funds Must Deduct Tax on Income Distribution to Unitholders Under Section 194LBB at Specified Rates

Section 194LBB governs tax deduction on income distributed by investment funds to unitholders. Introduced effective June 1, 2015, it applies when a business trust distributes non-business income referred to in section 115UB. Tax must be deducted at the time of credit or payment, whichever occurs earlier. The TDS rates are: 10% for residents, 30% plus surcharge and education cess for non-residents, and 35% plus surcharge and education cess for foreign companies. No deduction at lower rates is permitted under section 197. For non-residents/foreign companies, TDS applies only to income chargeable in India. If the recipient lacks a PAN, section 206AA(1) requires deduction at the highest applicable rate.