Our securitisation trust is distributing to PTC holders. Do we still deduct at twenty-five or thirty per cent, and who is taxed on the trust's income?
No — with effect from 1 April 2025 the Finance Act 2025 substituted the rate in section 194LBC(1) with a flat ten per cent for every resident investor, replacing the earlier twenty-five per cent for an individual or Hindu undivided family and thirty per cent for anyone else; for a non-resident (not being a company) or a foreign company the rate remains 'the rates in force' under sub-section (2). On the charge itself, section 115TCA taxes the income of a securitisation trust in the hands of its investor as if the investments had been made by him directly, with the income retaining its nature and proportion, and deems undistributed income to have been credited to the investor on the last day of the previous year.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 115TCA inserted by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017; section 194LBC inserted by the same Act with effect from 1 June 2016; the rate in section 194LBC(1) substituted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2025. It bears on section 115TCA, section 194LBC, section 10(23DA), section 201, section 201(1A) of the Income Tax Act 1961, in TDS Defaults, Charitable Trusts & Exemption, How Tax Law Is Read and Assessment & Scrutiny matters.
The rate change is large, recent and easy to miss: a trust that carried on deducting thirty per cent after 1 April 2025 has over-withheld by twenty percentage points on every corporate investor, and the investors' only remedy is a refund claim through their own returns. The other half of the section that repays attention is the definition of 'investor'. Section 194LBC borrows it from clause (a) of the Explanation after section 115TCA, where it means a person who is the holder of a securitised debt instrument, securities or a security receipt issued by the securitisation trust — a holding-based test. That is what the Mumbai Tribunal applied in SME Pool Series V August 2016 to hold that an originator who met its Minimum Retention Requirement by cash collateral rather than by subscribing to pass-through certificates is not an 'investor', so excess interest spread paid to it attracted no deduction. On the charging side, section 115TCA(3) deems income not paid or credited to have been credited on the last day of the previous year, and sub-section (5) prevents that income being taxed again when it is actually paid — so the investor's return is driven by accrual at trust level and by the statement furnished under sub-section (4), not by cash received.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 115TCA, headed 'Tax on income from securitisation trusts', provides in sub-section (1) that notwithstanding anything contained in the Act, any income accruing or arising to, or received by, a person being an investor of a securitisation trust, out of investments made in the securitisation trust, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person, had the investments by the securitisation trust been made directly by him. Sub-section (2) deems the income paid or credited by the trust to be of the same nature and in the same proportion in the investor's hands. Sub-section (3) deems income accruing to or received by the trust and not paid or credited to the investor to have been credited to his account on the last day of the previous year in his proportion. Sub-section (4) requires a statement to be furnished to the person liable to tax and to the prescribed income-tax authority. Sub-section (5) excludes from the investor's total income, in the year of actual payment, income already included on accrual. The Explanation after the section defines 'investor' as a person who is the holder of any securitised debt instrument or securities or security receipt issued by the securitisation trust; 'securities' as debt securities issued by a Special Purpose Vehicle as referred to in the Reserve Bank of India's guidelines on securitisation of standard assets; 'securitised debt instrument' by reference to regulation 2(1)(s) of the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008; 'securitisation trust' by reference to a special purpose distinct entity under those Regulations, a Special Purpose Vehicle under the RBI guidelines, or a trust set up by a securitisation or reconstruction company under the SARFAESI Act 2002, in each case fulfilling such conditions as may be prescribed; and 'security receipt' by reference to section 2(1)(zg) of the SARFAESI Act 2002. Section 194LBC(1), as substituted with effect from 1 April 2025, requires the person responsible for making the payment to deduct income-tax at the rate of ten per cent where any income is payable to a resident investor in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA; sub-section (2) requires deduction at the rates in force where the investor is a non-resident (not being a company) or a foreign company; and the Explanation to that section adopts the definition of 'investor' in clause (a) of the Explanation after section 115TCA and deems a credit to a suspense account to be a credit to the payee.
Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a securitisation trust is chargeable in the hands of its investors as if they had made the investments directly, retains its nature and proportion, and is deemed credited to them on the last day of the previous year if not paid or credited earlier; and from 1 April 2025 the withholding rate under section 194LBC(1) on payments to a resident investor is a flat ten per cent, the earlier twenty-five and thirty per cent rates having been substituted out by the Finance Act 2025.
The pair works in the same way as Chapter XII-FA and Chapter XII-FB do for business trusts and investment funds, but with a narrower and holding-based definition of the beneficiary. The charge in section 115TCA(1) rests on a fiction of direct investment, so the character and rate applicable to the investor govern; sub-section (2) preserves character and proportion; and sub-section (3) fixes the year by deeming undistributed income to be credited on the last day of the previous year, with sub-section (5) preventing a second charge on actual payment. Section 194LBC then supplies the machinery and, critically, borrows its 'investor' from clause (a) of the same Explanation, so the withholding obligation cannot be wider than the charge: a person who holds no instrument issued by the trust is not an investor, and a payment to him is not a payment to an investor in respect of an investment in the trust. The 2025 substitution changes only the rate for resident investors and does not touch either the definition or the non-resident limb.
deduct income-tax thereon, at the rate of ten per cent.
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Handle my notice → Ask a CA on WhatsAppNo — with effect from 1 April 2025 the Finance Act 2025 substituted the rate in section 194LBC(1) with a flat ten per cent for every resident investor, replacing the earlier twenty-five per cent for an individual or Hindu undivided family and thirty per cent for anyone else; for a non-resident (not being a company) or a foreign company the rate remains 'the rates in force' under sub-section (2). On the charge itself, section 115TCA taxes the income of a securitisation trust in the hands of its investor as if the investments had been made by him directly, with the income retaining its nature and proportion, and deems undistributed income to have been credited to the investor on the last day of the previous year. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115TCA, section 194LBC, section 10(23DA), section 201, section 201(1A) of the Income Tax Act 1961. It is reported as Section 115TCA inserted by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017; section 194LBC inserted by the same Act with effect from 1 June 2016; the rate in section 194LBC(1) substituted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2025. The rate change is large, recent and easy to miss: a trust that carried on deducting thirty per cent after 1 April 2025 has over-withheld by twenty percentage points on every corporate investor, and the investors' only remedy is a refund claim through their own returns. The other half of the section that repays attention is the definition of 'investor'. Section 194LBC borrows it from clause (a) of the Explanation after section 115TCA, where it means a person who is the holder of a securitised debt instrument, securities or a security receipt issued by the securitisation trust — a holding-based test. That is what the Mumbai Tribunal applied in SME Pool Series V August 2016 to hold that an originator who met its Minimum Retention Requirement by cash collateral rather than by subscribing to pass-through certificates is not an 'investor', so excess interest spread paid to it attracted no deduction. On the charging side, section 115TCA(3) deems income not paid or credited to have been credited on the last day of the previous year, and sub-section (5) prevents that income being taxed again when it is actually paid — so the investor's return is driven by accrual at trust level and by the statement furnished under sub-section (4), not by cash received. If it applies to you, the first step is this: For any credit or payment on or after 1 April 2025 to a resident investor, deduct ten per cent under section 194LBC(1); the twenty-five and thirty per cent rates apply only up to 31 March 2025 and remain relevant for open assessments and section 201 proceedings for those years.
Section 115TCA, headed 'Tax on income from securitisation trusts', provides in sub-section (1) that notwithstanding anything contained in the Act, any income accruing or arising to, or received by, a person being an investor of a securitisation trust, out of investments made in the securitisation trust, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person, had the investments by the securitisation trust been made directly by him. Sub-section (2) deems the income paid or credited by the trust to be of the same nature and in the same proportion in the investor's hands. Sub-section (3) deems income accruing to or received by the trust and not paid or credited to the investor to have been credited to his account on the last day of the previous year in his proportion. Sub-section (4) requires a statement to be furnished to the person liable to tax and to the prescribed income-tax authority. Sub-section (5) excludes from the investor's total income, in the year of actual payment, income already included on accrual. The Explanation after the section defines 'investor' as a person who is the holder of any securitised debt instrument or securities or security receipt issued by the securitisation trust; 'securities' as debt securities issued by a Special Purpose Vehicle as referred to in the Reserve Bank of India's guidelines on securitisation of standard assets; 'securitised debt instrument' by reference to regulation 2(1)(s) of the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008; 'securitisation trust' by reference to a special purpose distinct entity under those Regulations, a Special Purpose Vehicle under the RBI guidelines, or a trust set up by a securitisation or reconstruction company under the SARFAESI Act 2002, in each case fulfilling such conditions as may be prescribed; and 'security receipt' by reference to section 2(1)(zg) of the SARFAESI Act 2002. Section 194LBC(1), as substituted with effect from 1 April 2025, requires the person responsible for making the payment to deduct income-tax at the rate of ten per cent where any income is payable to a resident investor in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA; sub-section (2) requires deduction at the rates in force where the investor is a non-resident (not being a company) or a foreign company; and the Explanation to that section adopts the definition of 'investor' in clause (a) of the Explanation after section 115TCA and deems a credit to a suspense account to be a credit to the payee. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a securitisation trust is chargeable in the hands of its investors as if they had made the investments directly, retains its nature and proportion, and is deemed credited to them on the last day of the previous year if not paid or credited earlier; and from 1 April 2025 the withholding rate under section 194LBC(1) on payments to a resident investor is a flat ten per cent, the earlier twenty-five and thirty per cent rates having been substituted out by the Finance Act 2025.
The pair works in the same way as Chapter XII-FA and Chapter XII-FB do for business trusts and investment funds, but with a narrower and holding-based definition of the beneficiary. The charge in section 115TCA(1) rests on a fiction of direct investment, so the character and rate applicable to the investor govern; sub-section (2) preserves character and proportion; and sub-section (3) fixes the year by deeming undistributed income to be credited on the last day of the previous year, with sub-section (5) preventing a second charge on actual payment. Section 194LBC then supplies the machinery and, critically, borrows its 'investor' from clause (a) of the same Explanation, so the withholding obligation cannot be wider than the charge: a person who holds no instrument issued by the trust is not an investor, and a payment to him is not a payment to an investor in respect of an investment in the trust. The 2025 substitution changes only the rate for resident investors and does not touch either the definition or the non-resident limb. In the words reproduced by the source cited on this page: "deduct income-tax thereon, at the rate of ten per cent."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 115TCA inserted by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017; section 194LBC inserted by the same Act with effect from 1 June 2016; the rate in section 194LBC(1) substituted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115TCA, section 194LBC, section 10(23DA), section 201, section 201(1A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a securitisation trust is chargeable in the hands of its investors as if they had made the investments directly, retains its nature and proportion, and is deemed credited to them on the last day of the previous year if not paid or credited earlier; and from 1 April 2025 the withholding rate under section 194LBC(1) on payments to a resident investor is a flat ten per cent, the earlier twenty-five and thirty per cent rates having been substituted out by the Finance Act 2025. It arises in TDS Defaults, Charitable Trusts & Exemption, How Tax Law Is Read and Assessment & Scrutiny matters, on section 115TCA, section 194LBC, section 10(23DA), section 201, section 201(1A) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a non-resident (not being a company) or a foreign company, continue to apply 'the rates in force' under sub-section (2), with the tax residency certificate and Form 10F collected before credit or payment. Before deducting on any payment, test whether the payee is an 'investor' as clause (a) of the Explanation after section 115TCA defines it — a holder of a securitised debt instrument, securities or a security receipt ISSUED BY the trust. A deed of assignment is not such an instrument. Where the originator has met its Minimum Retention Requirement by cash collateral or by collateralising excess receivables rather than by subscribing to PTCs, take the point that section 194LBC is not attracted to excess interest spread paid to it, and cite the Tribunal's orders in Vivriti Cibus and SME Pool Series V. Issue the statement required by section 115TCA(4) on time and reconcile it with what each investor offers; sub-section (3) taxes the investor on undistributed income on the last day of the previous year, so a return built only on distributions received will be short. Where income has already been taxed on accrual under sub-section (3), do not offer it again when it is actually distributed — sub-section (5) excludes it.
Still good law. The ten per cent rate and the substitution footnote were read on the department's section 194LBC page carrying the current 'Year: 2026' stamp, the correct heading 'Income in respect of investment in securitization trust' and the Act name 'Income-tax Act, 1961'; three other departmental pages for the same section, stamped Year 2024 (No. 2), Year 2018 and Year 2016, print the superseded twenty-five and thirty per cent rates and were used only to establish what the earlier text was. Section 115TCA was read in full on two departmental pages stamped Year 2024 (No. 2) and Year 2022 which agree word for word, and the section and Explanation are also reproduced in the Departmental Representative's written submissions recorded verbatim in the Mumbai Tribunal's order in SME Pool Series V August 2016 v. ITO (TDS) (ITA Nos. 341 and 342/Mum/2023, pronounced 21 February 2024). Whether any Finance Act after 2016 has amended section 115TCA itself could not be established because the footnote block on the current pages was not reached. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The substituted rate was read on the department's section 194LBC page stamped Year 2026, which prints "deduct income-tax thereon, at the rate of ten per cent." in sub-section (1) and carries footnote 46, whose words are, in full: "Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025." That footnote was demanded character for character on two separate fetches of that page and came back identically both times; asked directly, the page reported that the words "twenty-five per cent" and "thirty per cent" do not appear on it at all. Act No. 7 of 2025 is the Finance Act, 2025. The reduction is independently corroborated off the departmental site by the Memorandum Explaining the Provisions in the Finance Bill, 2025, which states the existing rates as "25%, if the payee is an individual or a Hindu undivided family and 30%, if the payee is any other person" and proposes "that TDS rate under section 194LBC of the Act be reduced from 25% and 30% to 10%" with effect from the "1st day of April 2025"; the Finance Bill, 2025 (Bill No. 14 of 2025) carries it at clause 63. Departmental pages for the same section stamped Year 2024 (No. 2), Year 2018 and Year 2016 all still print the twenty-five and thirty per cent structure, and the suffix does not track vintage — each page was dated from its own 'Year:' stamp. Section 115TCA itself was read in full on a page stamped Year 2024 (No. 2) and again on one stamped Year 2022; both print the same five sub-sections and the same Explanation clauses (a) to (e), and the Mumbai Tribunal reproduces the section and the Explanation in the Departmental Representative's written submissions recorded in SME Pool Series V August 2016. The commencement of section 115TCA was read from footnote 80 on a page stamped Year 2017, 'Ins. by Act No. 28 of 2016 (w.e.f. 1-4-2017)'; note that footnotes 81 and 82 on the same page date the words 'or security receipt' in Explanation (a) and clauses (d)(iii) and (e) to the same Act but with effect from 1-6-2016, so the Explanation and the section itself carry different effective dates. The footnote block on the current section 115TCA pages was not reached, so no post-2016 amendment to that section has been ruled out. The date in `decided_on` is the date from which the substituted rate in section 194LBC(1) takes effect — 1 April 2025 — and not a decision date; this is a statutory entry and there is no decision behind it. Section 115TCA itself commenced on 1 April 2017 and section 194LBC on 1 June 2016, as `reported` records. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a securitisation trust is chargeable in the hands of its investors as if they had made the investments directly, retains its nature and proportion, and is deemed credited to them on the last day of the previous year if not paid or credited earlier; and from 1 April 2025 the withholding rate under section 194LBC(1) on payments to a resident investor is a flat ten per cent, the earlier twenty-five and thirty per cent rates having been substituted out by the Finance Act 2025.
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