194LBA TDS: Updated Guide on Business Trust Income Taxation

Key Takeaways

1. Section 194LBA ensures that TDS is deducted at the time of credit of income to the unitholder’s account or at the time of payment, whichever is earlier, when REITs or InvITs distribute income, with no minimum threshold limit.
    
2. The TDS rate under 194LBA depends on income type and residency, and non-residents may also claim DTAA benefits.
    
3. Income under 194LBA is reported through Schedule PTI, while TDS credit is claimed separately in Schedule TDS while filing ITR.

Bonus tip: Section 194LBA has no threshold. Missing PAN triggers 20% TDS under Section 206AA. Trusts file Form 26Q/27Q, issue Form 16A, and unitholders claim TDS credit in returns.

If you have invested in a REIT or InvIT and noticed tax being cut before the money comes to you, Section 194LBA is the reason. It simply makes sure tax is deducted as soon as income is paid, so investors do not have to deal with extra tax hassles later.

Section 194LBA works like a toll booth on an income highway. When REITs or InvITs pass income such as interest, rent, or SPV dividends to unitholders, tax is deducted at the checkpoint. The income keeps moving forward, but TDS is deducted at the time of credit of such income to the unitholder’s account or at the time of payment, whichever is earlier, with no minimum threshold limit.

Let’s say Rohit invests in a REIT and earns ₹50,000 as rental income. Before paying him, the REIT deducts TDS under Section 194LBA and credits the balance to his account. The deducted tax appears in Form 26AS, which Rohit later adjusts while filing his ITR.

What Is Section 194LBA? 

Section 194LBA acts as a tax checkpoint for REITs and InvITs. When these business trusts distribute income, such as interest, rent, or SPV dividends, to unitholders, TDS is deducted at the time of credit to the unitholder’s account or at the time of payment, whichever is earlier. 

The applicable TDS rate depends on the nature of income and the residency status of the unitholder, and there is no minimum threshold. In short, when income flows, tax follows, exactly at the point defined by law.

194LBA TDS Applicability: When Does It Apply?

Section 194LBA works like a silent tax rulebook in the background whenever REITs or InvITs distribute income to their unitholders. The moment income is credited or paid, this provision automatically comes into play and ensures tax is collected at source.

Who deducts the TDS?

The business trust (or the person paying on its behalf) plays the role of the tax collector. Unitholders receive income after TDS is deducted.

When does TDS apply?

TDS is deducted at the earlier of two events:

• When income is credited to the unitholder’s account
• When income is actually paid (cash, cheque, transfer, etc.)

What income is covered?
 

No minimum limit applies. Even ₹1 triggers TDS.
No PAN? Be ready for a higher TDS rate.

Let’s understand it with the help of an example

Rohit holds units of a REIT and earns ₹50,000 as rental income. The REIT deducts TDS first and pays him the balance. The deducted amount appears in Form 26AS, helping Rohit while filing his return.

Income flows first, and tax follows immediately under Section 194LBA.

194LBA TDS Rate: How Much TDS Is Deducted?

Under Section 194LBA, the TDS rate is not one-size-fits-all. It changes based on two key factors:

1. the type of income distributed by the REIT/InvIT, and
2. whether the unit holder is a resident or non-resident.

Below is a clear snapshot of the applicable TDS rates for FY 2024-25 and FY 2025-26.

TDS Rates under Section 194LBA
 

Important notes:

• For non-residents, surcharge and health & education cess are applicable over and above the base rate.
• DTAA benefits can be claimed if a lower rate is available and proper documents (such as a Tax Residency Certificate) are submitted.

194LBA TDS Limit: Is There Any Threshold?

Under Section 194LBA, there is no minimum amount that gets a free pass. Whether a business trust distributes ₹1 or ₹1,00,000 to its unitholders, TDS must be deducted as long as the income is taxable in the unitholder’s hands. In simple terms, the size of the payout doesn’t matter; if income is paid, tax is deducted.

194LBA TDS Taxable Under Which Head of Income?

Income covered under Section 194LBA does not get a new tax label just because TDS is deducted. It keeps its original nature, interest stays interest, dividends stay dividends, and rent remains rent. For unit holders, this income is typically taxed under "Income from Other Sources" or "Business Income," depending on how it is earned and utilised.

How Is Income Under 194LBA Reported in ITR?

Reporting income under Section 194LBA in your ITR is like filing a ‘pass-through income receipt’ correctly, so the income is taxed in your hands, and the TDS credit doesn’t get missed.

Step 1: Pick the right ITR form

• ITR-2: If you’re an investor and don’t have business income (the most common case).
• ITR-3: If you do have income under Business/Profession.
• ITR-5: For firms, LLPs, AOP/BOI, etc.

Step 2: Report the income in Schedule PTI

This is the main section for 194LBA income because it “keeps its character” even after passing through the REIT/InvIT.

• Open Schedule PTI (Pass Through Income)
• Enter the business trust’s name + PAN
• Add the income under the correct nature:
  • Interest
  • Rental/operational income
  • Dividend (if taxable)
• Wherever applicable, classify it correctly as:
  • Income from Other Sources

Step 3: Claim your TDS in Schedule TDS

• Match the TDS shown in Form 26AS / Form 16A
• Enter it in Schedule TDS so it gets adjusted against your final tax payable (or increases your refund).

PTI records the income, and TDS schedules claims the credit.

Conclusion

Section 194LBA simplifies taxation for REIT and InvIT investors by ensuring timely TDS on all income types without any threshold. The income keeps its original nature, TDS rates vary by residency, and proper reporting through Schedule PTI and Schedule TDS ensures smooth ITR filing and accurate tax credit without confusion.

FAQs

Q: If I have income from a business trust under Section 194LBA, which ITR should I file, and how is it classified?

You should file ITR-2 if you don’t have business income or ITR-3 if you do, and report the income under Schedule PTI as pass-through income.

Q: What transactions are eligible for TDS under Section 194LBA in India?

A: TDS applies when REITs or InvITs distribute interest, taxable SPV dividends, or rental/operational income to unitholders.

Q: I received dividend and rental income from Embassy Office Parks with TDS under Section 194LBA—which ITR should I file and where should I report it?
ITR-2 is correct, and you should report the income in Schedule PTI (Pass Through Income) and claim the TDS separately in Schedule TDS, not under regular dividend income.

Q: Is the 30% TDS deducted under Section 194BA on online gaming withdrawals claimable in ITR, and does the ₹75,000 standard deduction apply?

Yes, the 30% TDS can be claimed as credit while filing ITR, but no standard deduction applies; online gaming winnings are taxed separately at a flat 30%.

Q: How is income from REITs or InvITs taxed and reported under Section 194LBA?

A: Income is taxed after mandatory TDS with no threshold, keeps its original nature, and must be reported in Schedule PTI with TDS claimed separately in Schedule TDS while filing ITR.