Mechanism: The payer of section 115AB offshore-fund unit income or long-term gains on such units deducts 10%, subject to treaty relief.
Litigation profile: None. A narrow scheme-specific provision — the candour rule applies.
A. SECTION COMMENTARY
Section 196B requires any person responsible for paying to an offshore fund any income in respect of units referred to in section 115AB, or any long-term capital gains arising from the transfer of such units, to deduct income-tax at ten per cent. It is the withholding counterpart of section 115AB, the special charging regime for an 'offshore fund' (an overseas financial organisation investing in units of Mutual Funds purchased in foreign currency), which taxes both the unit income and the long-term gains on such units at the concessional flat rate.
A concessional, scheme-specific provision
Section 196B is one of the family of non-resident withholding provisions (with sections 196C and 196D) keyed to the corresponding special charge in Chapter XII (sections 115AB, 115AC and 115AD respectively). Its application depends on the payee answering the description of an offshore fund under section 115AB and on the income being of the specified kind; the rate is the flat 10% of that regime, subject to any more beneficial treaty rate.
Why authority is absent — candour
The provision is narrow, concessional and scheme-specific and has produced no body of judicial authority. In candour, it is applied from its terms read with section 115AB and the general chargeable-sum 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.
196B. Where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon 7-at the rate of—
(a) ten per cent in respect of income from units referred to in clause (i) of sub-section (1) of section 115AB;
(b) ten per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place before the 23rd day of July, 2024;
(c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place on or after the 23rd day of July, 2024.
C. AUTHORITIES
Candour rule observed: section 196B is a narrow, scheme-specific provision with no merits authority. The statutory scheme (with section 115AB) is offered.
Principle: Section 196B withholds at 10% on offshore-fund unit income and long-term gains on such units, matching the section 115AB charge, subject to any more beneficial treaty rate (section 90).
Use: Locates the provision within the offshore-fund regime.
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 and the treaty.
Use: Frames the chargeability enquiry underlying the section 196B 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 196B — Income from Units (Offshore 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, offshore-fund-facing; unlitigated.
Finance Act, 2026: No amendment.
Mechanism: The payer of section 115AB offshore-fund unit income or long-term gains on such units deducts 10%, subject to treaty relief.
Litigation profile: None. A narrow scheme-specific provision — the candour rule applies.
A. SECTION COMMENTARY
Section 196B requires any person responsible for paying to an offshore fund any income in respect of units referred to in section 115AB, or any long-term capital gains arising from the transfer of such units, to deduct income-tax at ten per cent. It is the withholding counterpart of section 115AB, the special charging regime for an 'offshore fund' (an overseas financial organisation investing in units of Mutual Funds purchased in foreign currency), which taxes both the unit income and the long-term gains on such units at the concessional flat rate.
A concessional, scheme-specific provision
Section 196B is one of the family of non-resident withholding provisions (with sections 196C and 196D) keyed to the corresponding special charge in Chapter XII (sections 115AB, 115AC and 115AD respectively). Its application depends on the payee answering the description of an offshore fund under section 115AB and on the income being of the specified kind; the rate is the flat 10% of that regime, subject to any more beneficial treaty rate.
Why authority is absent — candour
The provision is narrow, concessional and scheme-specific and has produced no body of judicial authority. In candour, it is applied from its terms read with section 115AB and the general chargeable-sum 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.
196B. Where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon 7-at the rate of—
(a) ten per cent in respect of income from units referred to in clause (i) of sub-section (1) of section 115AB;
(b) ten per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place before the 23rd day of July, 2024;
(c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place on or after the 23rd day of July, 2024.
C. AUTHORITIES
Candour rule observed: section 196B is a narrow, scheme-specific provision with no merits authority. The statutory scheme (with section 115AB) is offered.
Statutory backdrop and cognate principles
Charge under section 115AB (offshore funds)
Principle: Section 196B withholds at 10% on offshore-fund unit income and long-term gains on such units, matching the section 115AB charge, subject to any more beneficial treaty rate (section 90).
Use: Locates the provision within the offshore-fund regime.
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 and the treaty.
Use: Frames the chargeability enquiry underlying the section 196B 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.