Section 194LBC

Section 194LBC — the law in short

What the courts have decided on section 194LBC, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• SME Pool Series V August 2016 v ITO (TDS) — no section 194LBC deduction on excess interest spread where the originator holds no pass-through certificates ITATHelps taxpayerValidity unconfirmed
  Our securitisation trust pays excess interest spread to the originator, who met its retention requirement by cash collateral rather than by buying PTCs. Were we obliged to deduct under section 194LBC?
  No, on the Mumbai Tribunal's reasoning. Section 194LBC applies only where income is payable to an 'investor' in respect of an investment in the securitisation trust, and 'investor' is defined in clause (a) of the Explanation after section 115TCA as a holder of a securitised debt instrument, securities or a security receipt ISSUED BY the trust — a deed of assignment, by which the trust acquires the receivables, is not such an instrument. The originator here had subscribed to no pass-through certificates and had met its Minimum Retention Requirement by cash collateral and by collateralising excess receivables, so neither condition in the section was satisfied, and the demands of Rs. 4,21,30,230 under section 201(1) and Rs. 47,22,191 under section 201(1A) were deleted.
• Statutory position — sections 115TCA and 194LBC: the securitisation trust pass-through, and the flat ten per cent withholding from 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.