Tax Deduction at Source on Securitisation Trust Distributions : Clause 393(1)[Table: S.No. 4(iv)] and Clause 393(2)[Table: S.No. 9] of the Income-tax Bill, 2025 Vs. Section 194LBC of the Income Tax Act, 1961
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....ovides a detailed analysis of the relevant clauses in the Income Tax Bill, 2025, a comparative assessment with Section 194LBC of the 1961 Act, and an exploration of the practical and legal implications of the proposed changes. The focus will be on the statutory language, legislative intent, operational mechanics, and the impact on stakeholders, with particular attention to potential ambiguities, compliance requirements, and areas for future clarification. Objective and Purpose The legislative intent behind TDS provisions for income from securitisation trusts is twofold. First, to ensure timely collection of tax on income distributed by such trusts, which are often structured in ways that may otherwise escape immediate taxation. Second, to provide administrative convenience and certainty in the tax treatment of such income, given the diversity of investors (residents and non-residents) and the complexity of securitisation transactions. The evolution from Section 194LBC to the proposed regime under the Income Tax Bill, 2025, is informed by the need for simplification, alignment with international best practices, and the closing of loopholes that may have been exploited under the pr....
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....rates prescribed under the Finance Act or applicable Double Taxation Avoidance Agreements (DTAAs). Mechanics of Deduction: - TDS is to be deducted at the earlier of credit or payment. - The trust is responsible for deduction. - The "rates in force" concept may require reference to the relevant Finance Act and DTAAs, potentially necessitating grossing up if the tax is to be borne by the payer. Key Features: * Applies to all non-resident investors, regardless of their legal form. * Variable rate, increasing complexity but allowing for treaty relief. * No threshold, ensuring all payments are covered. Potential Ambiguities: - The need to determine the applicable "rates in force" for each payee may create administrative complexity. - The provision does not specify whether grossing up is mandatory if the tax is to be borne by the payer under an agreement, but general principles would apply. Practical Implications For Securitisation Trusts (Payers) * Compliance: Trusts must ensure TDS is deducted at the applicable rate (10% for residents, rates in force for non-residents) on every distribution, with proper reporting and remittance to the government. * Documentation: ....
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.... applied to non-individuals). * For non-residents, TDS at "rates in force," allowing for DTAA application. * Applies to all forms of income from securitisation trusts, unless specifically exempted. * Specific deeming provision for suspense accounts, ensuring TDS cannot be avoided by crediting to such accounts. 1. Scope and Applicability * Both the new Bill and Section 194LBC apply to income distributed by securitisation trusts to investors, covering both residents and non-residents. * The definition of "securitisation trust" is now harmonized under the Bill (section 221), whereas Section 194LBC referenced clause (d) of the Explanation after section 115TCA. This harmonization is aimed at reducing interpretational disputes. 2. TDS Rates * For Residents: * Section 194LBC (as amended from 1 April 2025): Flat 10% for all residents. * Income Tax Bill, 2025: Flat 10% for all residents (Clause 393(1)[Table: S.No. 4(iv)]). * Significance: The Bill cements the rate at 10% for all residents, removing the earlier (pre-2025) differential rates for individuals/HUFs and others. * For Non-Residents: * Both regimes: TDS at "rates in force," allowing for treaty application. ....
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....ntain documentation for lower withholding under DTAA, if applicable. * Any ambiguity in the definition of "securitisation trust" or "investor" under the new Bill must be clarified internally or through legal advice to avoid inadvertent non-compliance. 2. For Investors * Resident investors will benefit from the reduction in TDS rates (for non-individuals) and the certainty of a flat rate, but must continue to monitor TDS credits and claim refunds if tax deducted exceeds their actual tax liability. * Non-resident investors must ensure that their documentation is in order to avail of treaty benefits and avoid excess withholding. * Both resident and non-resident investors should be aware that TDS is only a mechanism for tax collection; the actual tax liability will be determined at the time of assessment, and excess TDS can be claimed as a refund. 3. For Tax Authorities * The shift to a harmonised TDS regime reduces administrative complexity and potential for disputes over rates and categorisation of investors. * However, the need to monitor compliance with DTAA provisions for non-residents remains a challenge, especially given the increasing sophistication of cross-borde....