TDS on income from units of Offshore Funds: A complete guide

Introduction

Offshore funds have become a popular investment option for many individuals looking to diversify their portfolios. However, with the rise of offshore funds, the tax implications associated with such investments have also increased. One such tax implication is the TDS on income from the units of Offshore Funds. In this blog, we will discuss in detail the provisions of Section 196B of the Income Tax Act, 1961, which deals with TDS on income from units of Offshore Funds.

What are offshore funds?

Offshore Funds are a type of investment fund that is based in a jurisdiction outside the investor’s country of residence. It offers a variety of investment options, including equity, debt, and hybrid funds. These funds are managed by professional fund managers who invest the pooled money of investors in various securities.

What is Section 196B of the Income Tax Act, 1961?

Section 196B of the Income Tax Act, 1961 applies to all payments made to a non-resident or a foreign company about income from units of Offshore Funds.

Who is responsible for deducting tax under Section 196B?

Under Section 196B, the person responsible for making the payment to a non-resident or a foreign company is required to deduct TDS. The person responsible can be the person making the payment, the fund manager, or any other person authorized by the offshore funds. The nature of payment covered under Section 196B is income from units of Offshore Funds. This includes:

• Any income received from units purchased in foreign currency or capital gains arising from their transfer or;
• Any income by way of long-term capital gains arising from the transfer of units purchased in foreign currency.

What is the rate of TDS under Section 196B of the Income tax Act, 1961?

The rate of TDS under Section 196B is 10%.

When to deduct tax under Section 196B?

TDS under Section 196B of the Income Tax Act, 1961 is to be deducted at the:

• Time of payment or credit of income to the non-resident or foreign company;
• Time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

Conclusion

In conclusion, TDS on income from units of Offshore Funds is an important tax implication that investors need to be aware of. Section 196B of the Income Tax Act, 1961, applies to any person responsible for making payments to offshore funds about income from units of Offshore Funds. The person responsible for making the payment is required to deduct TDS at the rate of 10%.