TDS on Income Distributed by Investment Funds
Introduction
Investment funds must deduct TDS under section 194LBB on income (other than business profits) distributed to unit holders, regardless of their residential status.
Key Provisions
- Deductor:The Investment Fund making the distribution.
- Deductee:All unit holders (both residents and non-residents).
- Rate of TDS:
o For Residents: 10% on distributed income.
o For Non-Residents:
20% on dividend income.
Other income: Tax is deducted at rates in force (as per the Finance Act or applicable DTAA).
o For non-residents, cess and surcharge shall apply.
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 income is exempt in the hands of the recipient
Compliance Requirements
- Lower/Nil Deduction Certificate:Available under Section 197 but not 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 under Section 272A.