Section 194LBC TDS on Securitisation Trust Income: 10% Rate and Rules
Section 194LBC of the Income-tax Act, 1961 governed tax deduction at source (TDS) on income payable by a qualifying securitisation trust to investors. The law was materially amended from 1 April 2025: the resident-investor rate became a uniform 10%, replacing the earlier 25% rate for individuals and HUFs and 30% rate for other residents. This article explains the historic provision, its definitions, non-resident treatment and the corresponding Income-tax Act, 2025 rules.
Section 194LBC: rate, payer and threshold
| Issue | Applicable position |
|---|---|
| Nature of income | Income payable to an investor in respect of investment in a qualifying securitisation trust |
| Person deducting | Person responsible for making the income payment, normally the securitisation trust |
| Resident investor: from 1 April 2025 | 10%, irrespective of whether the resident is an individual, HUF, company or other person |
| Resident investor: earlier period | 25% for resident individuals and HUFs; 30% for other resident persons, before the 2025 amendment |
| Non-resident individual or foreign company | Rates in force, subject to applicable law and treaty relief |
| Minimum threshold | Nil; no general monetary exemption threshold under the provision |
| Time of deduction | At credit to the investor's account or actual payment, whichever is earlier |
| New Act from 1 April 2026 | Section 393(1), Table 4(iv), and Section 393(2), Table 9, read with Section 221 |
What is a securitisation trust?
A securitisation trust is a qualifying vehicle through which financial assets, such as loan receivables, may be pooled and cash flows distributed to investors. For the 1961 Act, the term securitisation trust was defined in the Explanation following Section 115TCA, including qualifying trusts or special-purpose entities meeting statutory and regulatory conditions. It is not sufficient for a vehicle merely to call itself a securitisation trust; its legal status must satisfy the statutory definition.
Investor under that Explanation means a person holding an investment in the securitisation trust in the manner specified by law. The related tax pass-through regime was provided by Section 115TCA, under which qualifying income generally retains its nature and proportion in the investor's hands. Under the 2025 Act, the related framework appears in Section 221.
Resident investor: uniform 10% TDS from April 2025
Before 1 April 2025, Section 194LBC(1) prescribed 25% where the resident investor was an individual or HUF and 30% for other resident investors. The Finance Act, 2025 reduced both to 10% from 1 April 2025. These earlier rates are preserved here for historical transactions, but they should not be presented as the rate applicable to payments after the amendment.
The 2025 Act continues a 10% rate for resident investors under Section 393(1), Table serial number 4(iv), with a nil threshold. This is a withholding rate, not necessarily the final income-tax liability of the investor; taxability depends on the character of the underlying income and the investor's applicable rules.
Non-resident investors: rates in force
For an investor who is a non-resident individual or a foreign company, Section 194LBC(2) required deduction at the rates in force. This expression refers to the applicable statutory rate framework, taking account of the relevant Finance Act, the nature of income and, where available and properly documented, an applicable double-taxation avoidance agreement. The non-resident rule should not be confused with the uniform 10% resident rate.
The corresponding provision under the Income-tax Act, 2025 is Section 393(2), Table serial number 9. Examine surcharge, cess, PAN, tax-residency certificate, beneficial ownership and treaty conditions as applicable. Any lower or nil withholding determination should be supported by the relevant legal process and documents.
When is TDS deducted?
The 1961 Act required deduction at the earlier of credit of the income to the payee's account and actual payment, whether by cash, cheque, draft or other mode. Crediting income to a suspense account or an account under another name was expressly deemed to be credit to the payee for this purpose. This prevents withholding being postponed simply by changing the bookkeeping label.
Examples of Section 194LBC calculations
| Illustration | Income | Rate | TDS |
|---|---|---|---|
| Resident individual, payment after 1 April 2025 | Rs. 2,00,000 | 10% | Rs. 20,000 |
| Resident company, payment after 1 April 2025 | Rs. 2,00,000 | 10% | Rs. 20,000 |
| Resident individual, historical payment before 1 April 2025 | Rs. 2,00,000 | 25% | Rs. 50,000 |
| Other resident, historical payment before 1 April 2025 | Rs. 2,00,000 | 30% | Rs. 60,000 |
Examples assume the income is fully covered by the provision and disregard special higher-rate or lower-deduction orders. The non-resident calculation cannot be fixed without determining the applicable rates in force.
Withholding and reporting checklist
- Confirm that the paying vehicle qualifies as a securitisation trust and identify the relevant statutory regime for the payment date.
- Verify the investor's tax-residential status, PAN and the legal character of the distributed income.
- Determine the applicable rate and any valid statutory or treaty-based variation.
- Deduct tax at the earlier of credit or payment and deposit it within the applicable deadline.
- File the applicable TDS statement and issue the prescribed certificate; verify current forms and timelines under the 2025 Act and Income-tax Rules, 2026.
- Maintain investor records, income allocations, withholding workings and supporting documentation.
Section 194LBA, 194LBB and 194LBC compared
These sections concern different pass-through investment structures. Section 194LBA addressed specified income distributed by business trusts such as REITs and InvITs. Section 194LBB addressed certain income from units of qualifying investment funds. Section 194LBC addressed income from qualifying securitisation trusts. Each has its own definition, scope and resident/non-resident withholding rules.
Legislative history and 2025 Act mapping
Section 194LBC was inserted by the Finance Act, 2016 with effect from 1 June 2016. The Finance Act, 2025 reduced resident withholding to 10% from 1 April 2025. The Income-tax Act, 2025 applies from 1 April 2026 and reorganises TDS into Section 393. Resident securitisation-trust distributions are addressed by Section 393(1), Table serial 4(iv); non-resident distributions by Section 393(2), Table serial 9. The pass-through tax provisions are addressed in Section 221.
Frequently asked questions
Is Section 194LBC TDS still 25% or 30%?
No. Those were historical resident-investor rates. The uniform rate became 10% from 1 April 2025.
Does the 10% rate apply to foreign investors?
Not automatically. Non-resident investors are subject to the applicable rates in force, with treaty considerations where legally available.
Is there a minimum amount below which TDS is not required?
The provision does not prescribe a general minimum payment threshold; the corresponding 2025 Act resident table entry specifies a nil threshold.
Can a trust avoid TDS by posting income to a suspense account?
No. The historical provision expressly treated such a credit as credit to the investor's account.
What is the corresponding provision after 1 April 2026?
Section 393(1), Table serial 4(iv), for residents and Section 393(2), Table serial 9, for non-residents, read with Section 221 of the Income-tax Act, 2025.
Official legislation and references
- Income Tax Department: Section 194LBC of the 1961 Act
- Income Tax Department: Section 393, resident TDS table
- Income Tax Department: Section 393, non-resident TDS table
- Official Income-tax Act, 2025 (PDF)
- Union Budget 2025: Finance Bill and explanatory amendment materials
- Income Tax Department e-Filing portal
Updated 27 October 2026. This is general information; check the legislation, amendments and rules applicable to each payment date and investor before deducting tax.