Section 194JB of the Income Tax Act is a provision that deals with the taxation of income distributed by mutual fund units or units of an Association of Persons (AOP) to its unit holders. This provision was introduced in the Finance Act of 2015 and has been effective from June 1, 2015. In this blog post, we will explore the provisions of Section 194JB in detail.
What is Section 194JB?
Section 194JB applies to mutual funds and AOPs that have been set up for the purpose of investing in securities. It requires the mutual funds and AOPs to deduct tax at source at the rate of 10% on the income distributed to their unit holders. The tax so deducted needs to be deposited with the government within 7 days from the end of the month in which it was deducted.
Who is liable to deduct tax under Section 194JB?
The mutual fund or AOP that is making the distribution is responsible for deducting tax under Section 194JB. The tax needs to be deducted at the time of making the distribution and needs to be deposited with the government within the stipulated time.
What is the rate of tax under Section 194JB?
The rate of tax under Section 194JB is 10%. This tax is in addition to the tax that the unit holder is liable to pay on the income received from the mutual fund or AOP.
What is the threshold limit for a tax deduction under Section 194JB?
There is no threshold limit for a tax deduction under Section 194JB. The tax needs to be deducted at the rate of 10% on the entire income distributed by the mutual fund or AOP to its unit holders.
What is the impact of Section 194JB on the unit holders?
The impact of Section 194JB on the unit holders is that they will receive a lower income after the tax has been deducted by the mutual fund or AOP. The tax deducted under Section 194JB can be claimed as a credit against the tax liability of the unit holder at the time of filing their income tax return.
Applicability of Section 194JB
Section 194JB applies to income distributed by mutual fund units or units of an AOP to its unit holders. The income distributed can be in the form of interest, dividend, or any other distribution of income. However, it is important to note that Section 194JB does not apply to income that is exempt from tax or income that is subject to tax deduction at source under any other provision of the Income Tax Act.
Time of deduction of tax
The tax under Section 194JB needs to be deducted at the time of making the distribution of income to the unit holder. This means that the tax needs to be deducted at the time of redemption of units, dividend distribution, or any other distribution of income.
Consequences of non-compliance
If the mutual fund or AOP fails to deduct tax at source under Section 194JB, it will be liable to pay interest at the rate of 1% per month or part of the month for the period starting from the date on which tax was required to be deducted till the date on which it was actually deducted. In addition, the mutual fund or AOP may also be liable to pay a penalty for non-compliance.
Claim of credit
The tax deducted under Section 194JB can be claimed as a credit by the unit holder at the time of filing their income tax return. The credit can be claimed against the total tax liability of the unit holder for the relevant financial year.
Conclusion
Section 194JB of the Income Tax Act is an important provision that aims to ensure that tax is deducted at source on the income distributed by mutual funds and AOPs to their unit holders. The provision helps in increasing tax compliance and reducing the tax evasion. It is important for the mutual fund or AOP to comply with the provisions of Section 194JB to avoid interest and penalty. The unit holders can claim credit for the tax deducted under Section 194JB at the time of filing their income tax return.
Frequently Asked Questions (FAQs)
Q: What is Section 194JB of the Income Tax Act?
A: Section 194JB of the Income Tax Act is a provision that requires mutual funds and AOPs to deduct tax at source on the income distributed to their unit holders. The tax needs to be deducted at the rate of 10% and needs to be deposited with the government within 7 days from the end of the month in which it was deducted.
Q: Which entities are covered under Section 194JB?
A: Section 194JB applies to mutual funds and AOPs that have been set up for the purpose of investing in securities.
Q: What is the rate of tax under Section 194JB?
A: The rate of tax under Section 194JB is 10%.
Q: Is there any threshold limit for a tax deduction under Section 194JB?
A: No, there is no threshold limit for tax deduction under Section 194JB. The tax needs to be deducted at the rate of 10% on the entire income distributed by the mutual fund or AOP to its unit holders.
Q: Who is liable to deduct tax under Section 194JB?
A: The mutual fund or AOP that is making the distribution is responsible for deducting tax under Section 194JB.
Q: What is the time limit for depositing tax deducted under Section 194JB?
A: The tax deducted under Section 194JB needs to be deposited with the government within 7 days from the end of the month in which it was deducted.
Q: What happens if the mutual fund or AOP fails to deduct tax under Section 194JB?
A: If the mutual fund or AOP fails to deduct tax at source under Section 194JB, it will be liable to pay interest at the rate of 1% per month or part of the month for the period starting from the date on which tax was required to be deducted till the date on which it was actually deducted. In addition, the mutual fund or AOP may also be liable to pay a penalty for non-compliance.
Q: Can the unit holder claim credit for the tax deducted under Section 194JB?
A: Yes, the tax deducted under Section 194JB can be claimed as a credit by the unit holder at the time of filing their income tax return. The credit can be claimed against the total tax liability of the unit holder for the relevant financial year.
Q: Does Section 194JB apply to income that is exempt from tax?
A: No, Section 194JB does not apply to income that is exempt from tax or to income that is subject to tax deduction at source under any other provision of the Income Tax Act.
Q: When did Section 194JB become effective?
A: Section 194JB became effective from June 1, 2015, after it was introduced in the Finance Act of 2015.
