Business trusts, such as Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), were previously given a pass-through status for income like interest, dividend, and rental income from special purpose vehicles, meaning this income is exempt in the hands of the business trust and taxed in the hands of the investors. However, other income, such as capital gains, is taxed directly in the hands of the business trust, often at the maximum marginal rate. The Finance Bill 2025 introduces an amendment to section 115UA, ensuring that capital gains income, chargeable under section 112A of the Income Tax Act, will be taxed at the rate specified under section 112A rather than the maximum marginal rate, aligning the taxation more consistently for business trusts.
FAQs: Rationalisation in taxation of business trusts – Budget 2025
Q.1 What are the provisions relating to Business Trusts?
Ans. Business trusts (Infrastructure Investment Trusts or Real Estate Investment Trust) have been given a pass-through status in respect of interest income, dividend income and rental income from a special purpose vehicle i.e. exempted in the hands of business trusts and taxed in the hand of investor (unit holder).
The income other than the above income of a business trust, is charged to tax in the hands of business trust at the maximum marginal rate.
The income under the head Capital Gain is therefore not a pass-through income but is chargeable in the hands of the business trust itself. Such income is however presently charged to tax at rate under sections 111A and 112 of the Income Tax Act, 1961.
Q.2 What changes have been brought in provision relating to business trust?
Ans. The reference of income under the head ‘capital gains’, of the nature, chargeable under section 112A of the Income Tax Act, 1961 was missing in provisions relating to Business Trusts. The said reference has now been introduced by amendment of section 115UA.
Now, the income of Business Trusts, chargeable under section 112A, shall also be charged at the rate provided under said section and not at maximum marginal rate.
