Mechanism: A section 10(47) infrastructure debt fund deducts 5% on interest paid to a non-resident/foreign company, matching the concessional charge under section 115A and subject to treaty relief.
Litigation profile: None. A narrow concessional provision — the candour rule applies.
A. SECTION COMMENTARY
Section 194LB requires an infrastructure debt fund referred to in section 10(47) to deduct tax, at the rate of five per cent, on income by way of interest paid to a non-resident (not being a company) or to a foreign company. It is one of a family of concessional-rate withholding provisions designed to channel foreign capital into Indian infrastructure and debt markets, the low 5% rate being the inducement. The income is correspondingly taxed in the non-resident's hands at the concessional rate under the charging scheme read with section 115A.
A concessional, non-resident-facing provision
Section 194LB sits beside sections 194LC (interest on external commercial borrowings/rupee-denominated bonds) and 194LD (interest on rupee bonds and Government securities to FIIs/QFIs) as part of the concessional-withholding code for non-resident lenders. The deduction is the final incidence for many such payees, subject to any more beneficial treaty rate. Its operation depends on the fund's notification under section 10(47) and on the payee's non-resident status.
Why authority is absent — candour
The provision is narrow, concessional and compliance-oriented; it has generated no body of merits litigation. In candour, it is applied from its terms read with section 10(47) and section 115A, and with the general principle (GE India Technology) that withholding attaches only to chargeable sums, and the treaty-override available under section 90.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LB. Where any income by way of interest is payable to a non-resident, not being a company, or to a foreign company, by an infrastructure debt fund referred to in clause (47) of section 10, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
C. AUTHORITIES
Candour rule strictly observed: section 194LB is a concessional, non-resident-facing provision with no merits authority. Only the statutory scheme and cognate principles are offered.
No direct authority — statutory backdrop and cognate principles
Principle: Section 194LB operates where an infrastructure debt fund notified under section 10(47) pays interest to a non-resident; the 5% deduction matches the concessional charge under section 115A and is subject to any more beneficial treaty rate (section 90).
Use: Locates the provision within the concessional non-resident-withholding scheme.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with sections 5 and 9.
Use: Frames the chargeability enquiry that underlies any non-resident deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194LB — Income by Way of Interest from Infrastructure Debt Fund (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Concessional, non-resident-facing; unlitigated.
Finance Act, 2026: No amendment.
Mechanism: A section 10(47) infrastructure debt fund deducts 5% on interest paid to a non-resident/foreign company, matching the concessional charge under section 115A and subject to treaty relief.
Litigation profile: None. A narrow concessional provision — the candour rule applies.
A. SECTION COMMENTARY
Section 194LB requires an infrastructure debt fund referred to in section 10(47) to deduct tax, at the rate of five per cent, on income by way of interest paid to a non-resident (not being a company) or to a foreign company. It is one of a family of concessional-rate withholding provisions designed to channel foreign capital into Indian infrastructure and debt markets, the low 5% rate being the inducement. The income is correspondingly taxed in the non-resident's hands at the concessional rate under the charging scheme read with section 115A.
A concessional, non-resident-facing provision
Section 194LB sits beside sections 194LC (interest on external commercial borrowings/rupee-denominated bonds) and 194LD (interest on rupee bonds and Government securities to FIIs/QFIs) as part of the concessional-withholding code for non-resident lenders. The deduction is the final incidence for many such payees, subject to any more beneficial treaty rate. Its operation depends on the fund's notification under section 10(47) and on the payee's non-resident status.
Why authority is absent — candour
The provision is narrow, concessional and compliance-oriented; it has generated no body of merits litigation. In candour, it is applied from its terms read with section 10(47) and section 115A, and with the general principle (GE India Technology) that withholding attaches only to chargeable sums, and the treaty-override available under section 90.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LB. Where any income by way of interest is payable to a non-resident, not being a company, or to a foreign company, by an infrastructure debt fund referred to in clause (47) of section 10, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
C. AUTHORITIES
Candour rule strictly observed: section 194LB is a concessional, non-resident-facing provision with no merits authority. Only the statutory scheme and cognate principles are offered.
No direct authority — statutory backdrop and cognate principles
Concessional code — sections 10(47) and 115A
Principle: Section 194LB operates where an infrastructure debt fund notified under section 10(47) pays interest to a non-resident; the 5% deduction matches the concessional charge under section 115A and is subject to any more beneficial treaty rate (section 90).
Use: Locates the provision within the concessional non-resident-withholding scheme.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with sections 5 and 9.
Use: Frames the chargeability enquiry that underlies any non-resident deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.