Section 194R of the Income Tax Act: A Comprehensive Guide
Introduction:
Section 194R of the Income Tax Act, 1961, was introduced in the Union Budget 2020 to tax the income received by resident individuals from specified units of mutual funds and other specified assets. The section aims to increase the government’s revenue by widening the tax base and bringing more people into the tax net. In this blog, we will discuss Section 194R of the Income Tax Act in detail.
Applicability:
Section 194R applies to resident individuals who receive income from the following specified units or assets:
- Units of Mutual Funds
- Units of Business Trusts
- Units of Real Estate Investment Trusts (REITs)
- Units of Infrastructure Investment Trusts (InvITs)
- Other specified assets notified by the Central Government
Tax Rate:
The tax rate for income received by resident individuals from specified units or assets is 10%. However, if the income exceeds Rs. 5,000 in a financial year, tax will be deducted at source (TDS) by the mutual fund, business trust, REIT, or InvIT. The TDS rate will be 10% of the income received by the individual.
Exemptions:
The following individuals are exempted from the purview of Section 194R:
- Non-resident individuals
- Resident individuals who have not furnished their PAN (Permanent Account Number)
- Resident individuals whose income from specified units or assets is less than Rs. 5,000 in a financial year
Procedure for TDS:
The mutual fund, business trust, REIT, or InvIT is responsible for deducting TDS from the income of the individual. The TDS deducted must be deposited with the government within the specified time frame. The individual can claim credit for the TDS deducted while filing their income tax return.
Additional Information on Section 194R of the Income Tax Act
Specified Assets:
Apart from units of mutual funds, business trusts, REITs, and InvITs, the Central Government can notify other specified assets under Section 194R. The notification will specify the types of assets, the conditions for applicability, and the TDS rate applicable.
Mutual Funds:
Section 194R applies to all types of mutual funds, including equity-oriented funds, debt-oriented funds, and hybrid funds. The TDS will be deducted on the income received by the individual, which includes dividends, capital gains, or any other income.
Business Trusts:
Business Trusts are entities that are registered as trusts and hold income-generating assets. The income generated by the business trust is distributed to the unit holders in the form of dividends. Section 194R applies to income received by resident individuals from units of business trusts.
REITs and InvITs:
REITs and InvITs are types of trusts that invest in real estate or infrastructure projects, respectively. They allow investors to invest in real estate or infrastructure projects without owning the assets themselves. Section 194R applies to income received by resident individuals from units of REITs and InvITs.
TDS Certificate:
After deducting TDS, the mutual fund, business trust, REIT, or InvIT must issue a TDS certificate to the individual within the specified time frame. The TDS certificate will contain details of the TDS deducted, the income received by the individual, and other relevant information.
Penalty for Non-Compliance:
If the mutual fund, business trust, REIT, or InvIT fails to deduct TDS or deposit it with the government, they will be liable to pay interest and penalty as per the Income Tax Act. Similarly, if the individual fails to report the income received or claim credit for TDS while filing their income tax return, they will be liable to pay interest and penalty.
Conclusion:
Section 194R of the Income Tax Act is an important provision that applies to income received by resident individuals from specified units or assets. It is important for individuals to understand the applicability, tax rate, exemptions, and procedure for TDS under Section 194R to ensure compliance with the Income Tax Act. The mutual fund, business trust, REIT, or InvIT must also comply with the TDS provisions and issue TDS certificates to the individuals.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 194R of the Income Tax Act?
Answer: Section 194R is a new provision introduced in the Union Budget 2020 to tax the income received by resident individuals from specified units of mutual funds and other specified assets.
Who is liable to deduct TDS under Section 194R?
Answer: The mutual fund, business trust, REIT, or InvIT is liable to deduct TDS from the income of the individual.
What is the tax rate under Section 194R?
Answer: The tax rate for income received by resident individuals from specified units or assets is 10%.
What is the threshold limit for TDS deduction under Section 194R?
Answer: TDS will be deducted if the income received by the individual from specified units or assets exceeds Rs. 5,000 in a financial year.
Are non-resident individuals liable to pay tax under Section 194R?
Answer: No, non-resident individuals are exempted from the purview of Section 194R.
What are the specified assets under Section 194R?
Answer: The specified assets under Section 194R include units of mutual funds, business trusts, REITs, InvITs, and other assets notified by the Central Government.
Can individuals claim credit for TDS deducted under Section 194R?
Answer: Yes, individuals can claim credit for TDS deducted while filing their income tax return.
Are resident individuals whose income from specified units or assets is less than Rs. 5,000 in a financial year exempted from TDS deduction?
Answer: Yes, resident individuals whose income from specified units or assets is less than Rs. 5,000 in a financial year are exempted from TDS deduction.
What is the penalty for non-compliance under Section 194R?
Answer: If the mutual fund, business trust, REIT, or InvIT fails to deduct TDS or deposit it with the government, they will be liable to pay interest and penalty as per the Income Tax Act.
When must the mutual fund, business trust, REIT, or InvIT issue a TDS certificate to the individual?
Answer: The mutual fund, business trust, REIT, or InvIT must issue a TDS certificate to the individual within the specified time frame after deducting TDS.
