Union Budget 2025-26 (Full) + Finance Bill, 2025

V. 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]

 

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Full Text:

Union Budget 2025-26 (Full) + Finance Bill, 2025

Taxation of business trusts clarified: long-term capital gains treatment for units preserved alongside maximum marginal rate application. The Finance Bill amends the taxation of business trusts to clarify that a business trust's total income remains taxable at the maximum marginal rate but subject to the long-term capital gains provision applicable to units of a business trust, thereby preserving pass-through taxation of interest, dividend and rental income in the hands of unit holders and explicitly aligning capital gains treatment with the special regime for REITs and InVITs.