Section 194LBA(1) Certain income distributed by a business trust among its unit holder

Section 194lba(1) Introduction

The proposed Budget 2023 includes a change to allow taxpayers to get a 'nil rate' or lower Tax Deduction Source (TDS) certificate. This is in connection with tax deductions required under section 194LBA of the Income Tax Act, 1961 by Business Trusts.
The bill aims to incorporate provision 194LBA into Section 197 of the Income Tax Act, which discusses the certificate for lower rate deduction.

Section 115UA of the Income Tax Act clearly establishes that the income derived from a Business Trust is subject to taxation at the maximum marginal rate. 

Per Section 194LBA, a 10% tax is deducted from specific income derived from business trust units. This deduction occurs when the payment is credited to the payee's account, regardless of whether the payment is made in cash, through a check, a draft, or any other form. However, for companies that are non-resident, the tax deduction stands at a lower rate of 5%.

Section 197 of the Income Tax Act outlines who can get a lower rate deduction certificate. A proposal was made to amend Section 197, Subsection (1) to include amounts under Section 194LBA for lower rate deduction eligibility.

The 2023 Finance Bill includes a change to section 197 of the Income Tax Act, adding section 194LBA. According to this, when the certificate is issued, the paymaster must withhold income tax at the certificate's rates or not withhold any tax, based on the situation, until the Assessing Officer cancels the certificate.