Section 196B deals with tax deducted at source on income in respect of units payable to an Offshore fund. Any entity making payment of income from units or by way of Long Term Capital Gain from the transfer of such units to an Offshore Fund, shall at the time of credit or at the time of payment in cash or cheque/draft, etc. Whichever is earlier deduct tax @ 10% on such income.
Where any income is payable to an offshare funds that is any payment to fund, institution, association of body whether incorporated or not, which is established outside India in respect of units subscribed in foreign currency or where any long term capital gain arises on the transfer of such units, the payer of such income is liable to deduct tax on such income at the rate of 10%.
In the case of BOI and AOP surcharge is payable @ 10% on income tax, provided the amount payable exceeds Rs. 10 Lakh. Surcharge is payable in case of firm @ 10%, provided such income exceeds Rs. 1 crore. However, non-domestic company is liable to pay surcharge @ 2.5% on income tax, provided such income exceeds Rs. 1 crore.
Education cess and secondary and higher education cess is payable @2% and 1% respectively on the aggregate amount of income tax and surcharge.
Tax deduction may be made at the time of credit of such income to the amount of the payee or at the time of payment, whichever is earlier. The mode of payment may be in cash or by cheque or any other mode of payment.
As Per Section 196B, of the Income Tax Act, 1961-
Income from units.
196B. Where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.