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 taxpayer
  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.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.

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.