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Business trusts to pay tax at maximum marginal rate

Published: Feb 03, 2025

By TIOLCorplaws News Services

NEW DELHI, FEB 03, 2025: THE government has proposed an important amendment to the taxation regime for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs), also known as business trusts. The amendment aims to streamline the tax treatment of long-term capital gains for these business structures and ensure consistency in the application of tax provisions.

Under the special taxation regime introduced by the Finance (No. 2) Act, 2014, business trusts are granted pass-through status for certain types of income, such as interest, dividend, and rental income received from special purpose vehicles (SPVs). This means that such income is taxed in the hands of the unit holders, unless specifically exempted. However, it has been noted that section 112A, which deals with long-term capital gains tax on assets like equity shares, units of equity-oriented funds, and business trusts, was not referenced in sub-section (2) of section 115UA.

To address this gap, the government has proposed an amendment to sub-section (2) of section 115UA. The amendment will ensure that the total income of a business trust is taxed at the maximum marginal rate, subject to the provisions of section 111A, section 112, and section 112A. This change will bring long-term capital gains on business trust units under the same tax treatment as other long-term capital assets.

The amendment is set to come into effect from April 1, 2026, and will apply to the assessment year 2026-27 and subsequent years. This update is expected to further clarify the tax structure for business trusts, making it more consistent and transparent for investors and stakeholders in the infrastructure and real estate sectors.

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