The Finance Bill, 2025, proposes an amendment to Section 115UA of the Income-tax Act, which governs the taxation of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), collectively known as business trusts. These entities benefit from a pass-through taxation regime, where interest, dividend, and rental income are taxed in the hands of unit holders unless exempted. Currently, Section 115UA(2) states that the total income of a business trust is taxed at the maximum marginal rate, subject to Sections 111A and 112, which govern capital gains taxation. However, the reference to Section 112A, which deals with long-term capital gains on equity shares and units of business trusts, is missing. The proposed amendment includes Section 112A to align taxation rules. This change will be effective from April 1, 2026, impacting assessment year 2026-27 and subsequent years.
Budget 2025: Rationalisation in taxation of Business trusts
Finance (No.2) Act, 2014 introduced a special taxation regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InVIT) [commonly referred to as business trusts]. The special regime was introduced in order to address the challenges of financing and investment in infrastructure. The business trusts invest in special purpose vehicles (SPV) through equity or debt instruments.
2. Keeping in mind the business structure, the special taxation regime under section 115UA of the Act, inter-alia, provides a pass-through status to business trusts in respect of interest income, dividend income received by the business trust from a special purpose vehicle in case of both REIT and InvIT and rental income in case of REIT. Such income is taxable in the hands of the unit holders unless specifically exempted.
3. Sub-section (2) of section 115UA provides that the total income of a business trust shall be charged to tax at the maximum marginal rate, subject to the provisions of section 111A and section 112.
4. It has been noted that reference of section 112A is not mentioned in sub-section (2) of section 115UA. Section 112A provides tax on long-term capital gains in certain cases of long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust.
5. It is proposed to amend sub-section (2) of section 115UA to provide that the total income of a business trust shall be charged to tax at the maximum marginal rate, subject to the provisions of section 111A, section 112 as well as section 112A.
6. This amendment will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.
[Clause 25]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 25 of the Bill seeks to amend section 115UA of the Income-tax Act relating to tax on income of unit holder and business trust.
Sub-section (2) of the said section provides that the total income of a business trust shall be charged to tax subject to the provisions of sections 111A and 112.
It is proposed to amend the said sub-section so as to provide the reference of section 112A therein.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
25. Amendment of section 115UA.
In section 115UA of the Income-tax Act, in sub-section (2), for the words, figures and letter “section 111A and section 112”, the words, figures and letters “sections 111A, 112 and 112A” shall be substituted with effect from the 1st April, 2026.
