TDS on Income Distributed by Business Trusts
Introduction
As per section 194LBA, business trusts, such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs), must deduct TDS on specified income distributed to unit holders, regardless of their residential status.
Key Provisions
- Deductor:The business trust making distributions.
- Deductee:All unit holders (both residents and non-residents).
- Income Subject to TDS:
o Interest received from a Special Purpose Vehicle (SPV).
o Dividend received from an SPV (if the SPV has opted for a concessional tax regime under Section 115BAA).
o Rental income earned directly by a REIT from real estate assets.
- Rate of TDS:
o For Residents: 10% on distributed income.
o For Non-Residents:
5% on interest from SPV.
10% on dividends from SPV.
30% (non-resident individuals) / 35% (foreign companies) on rental income from real estate.
o Surcharge and cess apply to non-residents.
o Higher rates apply if PAN is not provided (Section 206AA).
- Time of Deduction:At the time of credit or payment, whichever is earlier.
Exemptions from TDS
- Government, RBI, and Tax-Exempt Entities:No TDS by virtue of section 196.
- If the distributed sum is taxable in the hands of the unit holder underSection 56(2)(xii).
Compliance Requirements
- Lower/Nil Deduction Certificate:
o Available under Section 197
o Not available through self-declaration under Section 197A.
- Deposit of TDS:
o Payable via Challan ITNS 281 within 7 days from the end of the deduction month.
o For March deductions, deposit by 30th April.
o Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statement Filing:
o Form 26Q for residents.
o Form 27Q for non-residents.
- TDS Certificate:Form 16A must be issued within 15 days from the due date of TDS statement filing.
Consequences of Non-Compliance
- Failure to Deduct or Deposit TDS:
o Interest liability under Section 201.
o Penalty under Section 271C (up to the non-deducted amount).
o Prosecution under Section 276B.
- Failure to Furnish TDS Statement:
o Penalty of Rs. 200 per day (limited to TDS amount) under Section 234E.
o Additional penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificate: Liable for penalty underSection 272A.