CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194LBA — Income from Units of a Business Trust (REIT/InvIT) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Withholding counterpart of section 115UA; lightly litigated.
Finance Act, 2026: No amendment.
Mechanism: A business trust distributing section 115UA income (SPV interest, rent, dividend) deducts tax — 10% for resident unit-holders; specified rates for non-residents — at distribution.
Litigation profile: Sparse. The regime is recent and the withholding provision is untested — the candour rule applies.
A. SECTION COMMENTARY
Section 194LBA is the withholding counterpart of the business-trust pass-through regime in section 115UA (Chapter XII-FA), which governs Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Where a business trust distributes to its unit-holders income of the nature referred to in section 115UA — interest received from a special-purpose vehicle, rental income from directly-held property, and dividend — the trust must deduct tax: under sub-section (1) at ten per cent for resident unit-holders, and under sub-sections (2) and (3) at the specified rates for non-resident unit-holders.
Pass-through character determines the deduction
The defining feature is that the business trust is a pass-through for the specified streams: the income retains its character in the unit-holder's hands, and section 194LBA withholds at the point of distribution accordingly. The rate and the very applicability turn on the nature of the distributed income (interest/rent/dividend) and on the residential status of the unit-holder, dovetailing with sections 115UA, 10(23FC) and 10(23FCA).
Why authority is sparse — candour
Section 194LBA and the section 115UA regime are relatively recent and have generated little merits litigation, none of it on the withholding provision itself. In candour, the section is applied from its terms read with section 115UA and the related exemptions, and with the general default and treaty principles.
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.
194LBA. (1) Where any distributed income referred to in section 115UA, being of the nature referred to in clause (23FC) or clause (23FCA) of section 10, is payable by a business trust to its unit holder being a resident, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.
(2) Where any distributed income referred to in section 115UA, being of the nature referred to in clause
(23FC) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company) or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the 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 in case of income of the nature referred to in sub-clause (a) and ten per cent in case of income of the nature referred to in sub-clause (b), of the said clause.
(2A) Nothing contained in sub-sections (1) and (2) shall apply in respect of income of the nature referred to in sub-clause (b) of clause (23FC) of section 10, if the special purpose vehicle referred to in the said clause has not exercised the option under section 115BAA.
(3) Where any distributed income referred to in section 115UA, being of the nature referred to in clause
(23FCA) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company), or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
C. AUTHORITIES
Candour rule observed: section 194LBA tracks the section 115UA business-trust pass-through and has no direct authority. Only the statutory scheme is offered.
Statutory backdrop — the section 115UA pass-through
Principle: A business trust is a pass-through for interest from the SPV, rental income and dividend; such income retains its character in the unit-holder's hands, and section 194LBA withholds at distribution — 10% for residents (sub-section (1)) and at specified rates for non-residents (sub-sections (2)/(3)).
Use: Explains what section 194LBA withholds against and why the rate depends on the income stream and the unit-holder's status.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194LBA.
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 194LBA — Income from Units of a Business Trust (REIT/InvIT) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Withholding counterpart of section 115UA; lightly litigated.
Finance Act, 2026: No amendment.
Mechanism: A business trust distributing section 115UA income (SPV interest, rent, dividend) deducts tax — 10% for resident unit-holders; specified rates for non-residents — at distribution.
Litigation profile: Sparse. The regime is recent and the withholding provision is untested — the candour rule applies.
A. SECTION COMMENTARY
Section 194LBA is the withholding counterpart of the business-trust pass-through regime in section 115UA (Chapter XII-FA), which governs Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Where a business trust distributes to its unit-holders income of the nature referred to in section 115UA — interest received from a special-purpose vehicle, rental income from directly-held property, and dividend — the trust must deduct tax: under sub-section (1) at ten per cent for resident unit-holders, and under sub-sections (2) and (3) at the specified rates for non-resident unit-holders.
Pass-through character determines the deduction
The defining feature is that the business trust is a pass-through for the specified streams: the income retains its character in the unit-holder's hands, and section 194LBA withholds at the point of distribution accordingly. The rate and the very applicability turn on the nature of the distributed income (interest/rent/dividend) and on the residential status of the unit-holder, dovetailing with sections 115UA, 10(23FC) and 10(23FCA).
Why authority is sparse — candour
Section 194LBA and the section 115UA regime are relatively recent and have generated little merits litigation, none of it on the withholding provision itself. In candour, the section is applied from its terms read with section 115UA and the related exemptions, and with the general default and treaty principles.
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.
194LBA. (1) Where any distributed income referred to in section 115UA, being of the nature referred to in clause (23FC) or clause (23FCA) of section 10, is payable by a business trust to its unit holder being a resident, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.
(2) Where any distributed income referred to in section 115UA, being of the nature referred to in clause
(23FC) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company) or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the 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 in case of income of the nature referred to in sub-clause (a) and ten per cent in case of income of the nature referred to in sub-clause (b), of the said clause.
(2A) Nothing contained in sub-sections (1) and (2) shall apply in respect of income of the nature referred to in sub-clause (b) of clause (23FC) of section 10, if the special purpose vehicle referred to in the said clause has not exercised the option under section 115BAA.
(3) Where any distributed income referred to in section 115UA, being of the nature referred to in clause
(23FCA) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company), or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
C. AUTHORITIES
Candour rule observed: section 194LBA tracks the section 115UA business-trust pass-through and has no direct authority. Only the statutory scheme is offered.
Statutory backdrop — the section 115UA pass-through
Pass-through under section 115UA (REITs/InvITs)
Principle: A business trust is a pass-through for interest from the SPV, rental income and dividend; such income retains its character in the unit-holder's hands, and section 194LBA withholds at distribution — 10% for residents (sub-section (1)) and at specified rates for non-residents (sub-sections (2)/(3)).
Use: Explains what section 194LBA withholds against and why the rate depends on the income stream and the unit-holder's status.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194LBA.
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.