My client is a registered REIT that owns some office buildings directly rather than through a project company, and lets them out. Is that rent taxed in the REIT's hands at the maximum marginal rate?
No. Clause (23FCA) of section 10 keeps out of a business trust's total income any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust. The clause was inserted by section 7(III)(d) of the Finance Act, 2015 with effect from 1 April 2016, and "real estate asset" takes the meaning given to it in clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014. Two limits are on the face of it: the trust must be a real estate investment trust, so an InvIT cannot use the clause; and the asset must be owned directly by the trust, so rent earned by a special purpose vehicle and passed up as interest or dividend is on a different clause altogether.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-04-01, reported as Section 10(23FCA) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FCA) as inserted by section 7(III)(d) of the Finance Act, 2015. It bears on section 10(23FCA), section 10(23FC), section 10(23FD), section 115UA, section 115UA(2), section 115UA(3), section 194LBA, section 194LBA(3), section 2(13A), section Rule 12CA of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and House Property matters.
Clause (23FCA) exists because the 2014 regime assumed a REIT would hold everything through special purpose vehicles, and the SEBI regulations then allowed direct ownership. Without this clause direct rent would sit in the trust's total income and be charged under section 115UA(2) at the maximum marginal rate, and would be exempt in the unit holder's hands under section 10(23FD) — the worst of both worlds. The clause reverses that: rent from directly held property is out of the trust's income, and section 115UA(3) then charges it in the unit holder's hands, because section 10(23FD) expressly excludes income of the nature referred to in clause (23FCA) from the unit holder's exemption. The withholding follows: section 194LBA(1) deducts ten per cent from a resident unit holder on the clause (23FCA) stream as it does on the clause (23FC) stream, but section 194LBA(3) deals with the clause (23FCA) stream paid to a non-resident or foreign company separately and at "the rates in force", not at the five per cent that applies to the interest limb. That distinction between a fixed rate and rates in force is a common error in REIT withholding, and it is worth reading the two sub-sections side by side before certifying a deduction. Note also what the clause does not do. It says nothing about capital gains on the sale of a directly held asset, which stay in the trust's total income under section 115UA(2), read with sections 111A and 112; and it says nothing about a distribution that is repayment of debt, which since 1 April 2024 is caught in the unit holder's hands by section 56(2)(xii).
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 7 of the Finance Act, 2015 amended section 10 of the Income-tax Act. Its Part (III) is expressed to operate "with effect from the 1st day of April, 2016". Sub-part (d) of that Part provided that after clause (23FC), clause (23FCA) shall be inserted, in the terms quoted below, with an Explanation taking the expression "real estate asset" from clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992). The same Part, at sub-part (e), amended clause (23FD) so that the unit holder's residual exemption does not extend to income of the nature referred to in clause (23FCA) either.
Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a business trust that is a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by that trust, is not included in the trust's total income and is therefore not charged in the trust's hands under section 115UA(2). It is instead charged in the unit holder's hands under section 115UA(3), section 10(23FD) having been amended by the same Finance Act to exclude income of the nature referred to in clause (23FCA) from the unit holder's exemption. The clause is confined to a real estate investment trust and to assets owned directly by it.
Not applicable — statutory text.
any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.Explanation. - For the purposes of this clause, the expression "real estate asset" shall have the same meaning as assigned to it in clause (zj) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
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Handle my notice → Ask a CA on WhatsAppNo. Clause (23FCA) of section 10 keeps out of a business trust's total income any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust. The clause was inserted by section 7(III)(d) of the Finance Act, 2015 with effect from 1 April 2016, and "real estate asset" takes the meaning given to it in clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014. Two limits are on the face of it: the trust must be a real estate investment trust, so an InvIT cannot use the clause; and the asset must be owned directly by the trust, so rent earned by a special purpose vehicle and passed up as interest or dividend is on a different clause altogether. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(23FCA), section 10(23FC), section 10(23FD), section 115UA, section 115UA(2), section 115UA(3), section 194LBA, section 194LBA(3), section 2(13A), section Rule 12CA of the Income Tax Act 1961. It is reported as Section 10(23FCA) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FCA) as inserted by section 7(III)(d) of the Finance Act, 2015. Clause (23FCA) exists because the 2014 regime assumed a REIT would hold everything through special purpose vehicles, and the SEBI regulations then allowed direct ownership. Without this clause direct rent would sit in the trust's total income and be charged under section 115UA(2) at the maximum marginal rate, and would be exempt in the unit holder's hands under section 10(23FD) — the worst of both worlds. The clause reverses that: rent from directly held property is out of the trust's income, and section 115UA(3) then charges it in the unit holder's hands, because section 10(23FD) expressly excludes income of the nature referred to in clause (23FCA) from the unit holder's exemption. The withholding follows: section 194LBA(1) deducts ten per cent from a resident unit holder on the clause (23FCA) stream as it does on the clause (23FC) stream, but section 194LBA(3) deals with the clause (23FCA) stream paid to a non-resident or foreign company separately and at "the rates in force", not at the five per cent that applies to the interest limb. That distinction between a fixed rate and rates in force is a common error in REIT withholding, and it is worth reading the two sub-sections side by side before certifying a deduction. Note also what the clause does not do. It says nothing about capital gains on the sale of a directly held asset, which stay in the trust's total income under section 115UA(2), read with sections 111A and 112; and it says nothing about a distribution that is repayment of debt, which since 1 April 2024 is caught in the unit holder's hands by section 56(2)(xii). If it applies to you, the first step is this: Check first that the trust is registered as a Real Estate Investment Trust under the SEBI (Real Estate Investment Trusts) Regulations, 2014. The clause opens "any income of a business trust, being a real estate investment trust" — an Infrastructure Investment Trust is outside it however similar the receipt looks.
Section 7 of the Finance Act, 2015 amended section 10 of the Income-tax Act. Its Part (III) is expressed to operate "with effect from the 1st day of April, 2016". Sub-part (d) of that Part provided that after clause (23FC), clause (23FCA) shall be inserted, in the terms quoted below, with an Explanation taking the expression "real estate asset" from clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992). The same Part, at sub-part (e), amended clause (23FD) so that the unit holder's residual exemption does not extend to income of the nature referred to in clause (23FCA) either. The matter was decided on 2016-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a business trust that is a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by that trust, is not included in the trust's total income and is therefore not charged in the trust's hands under section 115UA(2). It is instead charged in the unit holder's hands under section 115UA(3), section 10(23FD) having been amended by the same Finance Act to exclude income of the nature referred to in clause (23FCA) from the unit holder's exemption. The clause is confined to a real estate investment trust and to assets owned directly by it.
Not applicable — statutory text. In the words reproduced by the source cited on this page: "any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.Explanation. - For the purposes of this clause, the expression "real estate asset" shall have the same meaning as assigned to it in clause (zj) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);"
It was decided by the CBDT Circulars & Instructions on 2016-04-01 and is reported as Section 10(23FCA) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FCA) as inserted by section 7(III)(d) of the Finance Act, 2015. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(23FCA), section 10(23FC), section 10(23FD), section 115UA, section 115UA(2), section 115UA(3), section 194LBA, section 194LBA(3), section 2(13A), section Rule 12CA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a business trust that is a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by that trust, is not included in the trust's total income and is therefore not charged in the trust's hands under section 115UA(2). It is instead charged in the unit holder's hands under section 115UA(3), section 10(23FD) having been amended by the same Finance Act to exclude income of the nature referred to in clause (23FCA) from the unit holder's exemption. The clause is confined to a real estate investment trust and to assets owned directly by it. It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and House Property matters, on section 10(23FCA), section 10(23FC), section 10(23FD), section 115UA, section 115UA(2), section 115UA(3), section 194LBA, section 194LBA(3), section 2(13A), section Rule 12CA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Prove direct ownership. The clause covers renting, leasing or letting out of a real estate asset "owned directly by such business trust". Rent earned inside a special purpose vehicle and paid up as interest or dividend is on clause (23FC), not this one, and the two carry different consequences for the unit holder and different withholding. Take the meaning of "real estate asset" from clause (zj) of sub-regulation (1) of regulation 2 of the SEBI (Real Estate Investment Trusts) Regulations, 2014, which is where the Explanation to the clause sends you, and keep that regulation on the file rather than arguing the ordinary meaning of the words. Segregate the direct-rent stream in the Form 64A and Form 64B statements under rule 12CA. The unit holder is charged on it under section 115UA(3) and cannot claim section 10(23FD) for it, so a statement that lumps it with exempt distributions will produce the wrong return at the investor's end. On withholding, use section 194LBA(1) at ten per cent for a resident unit holder and section 194LBA(3) at the rates in force for a non-resident or foreign company on this stream. Do not carry the five per cent from sub-section (2) across; that rate belongs to the interest limb of clause (23FC).
Searched for later treatment; none was found. That is not the same as a source affirming it. No instrument amending clause (23FCA) of section 10 since its insertion by the Finance Act, 2015 has been found, and a targeted search for a later amendment turned up nothing. The corroboration for the clause is indirect and the reader should know it. The clause could not be read in a consolidated text of section 10: the consolidations available truncate well before it. What is set out on this page is taken from the enacting words of the Finance Act, 2015, and the clause is confirmed to be in force in its own terms by two consolidations of section 194LBA, of 2019 and 2024 vintage, both of which cross-refer to 'clause (23FCA) of section 10' and prescribe a distinct rate for that stream. Those cross-references remain consistent with the clause as this entry states it. Two limits are on the face of the clause and go to every use of it. The trust must be a real estate investment trust, so an Infrastructure Investment Trust cannot use it however similar the receipt looks; and the asset must be owned directly by the trust, so rent earned inside a special purpose vehicle and passed up as interest or dividend is on clause (23FC) and not on this clause. This states the law under the Income-tax Act 1961, which governs up to assessment year 2026-27 and the disputes arising from those years. For a tax year governed by the Income-tax Act 2025 the successors of clause (23FCA) and of sections 115UA and 194LBA should be identified; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
WHERE THE TEXT ON THIS PAGE COMES FROM. The clause is quoted from the enacting words of section 7(III)(d) of the Finance Act, 2015, transcribed verbatim, because it could not be read in any consolidated text of section 10. Every consolidation of that section located truncates before clause (23FCA); the furthest any of them reaches is clause (23DA). That is a limitation of the available texts, not evidence that the clause is absent, and each text was checked to establish that it ends short of the clause rather than omitting it. HOW THE CLAUSE IS CORROBORATED. By two consolidations of section 194LBA, one of 2019 and one of 2024 vintage, both of which cross-refer to 'clause (23FCA) of section 10' and prescribe a distinct rate for that stream. Whether any Finance Act after 2015 has amended the clause has not been established, and no proviso to the clause is asserted, because none appears in the enacting words. ON THE DATES. The Finance Act, 2015 is Act No. 20 of 2015. The commencement given here, 'with effect from the 1st day of April, 2016', is the commencement stated in the Finance Act itself. WHY THE CLAUSE EXISTS, which explains its shape. The 2014 regime assumed a real estate investment trust would hold everything through special purpose vehicles, and the SEBI regulations then allowed direct ownership. Without this clause, direct rent would sit in the trust's total income and be charged under section 115UA(2) at the maximum marginal rate, and would then be exempt in the unit holder's hands under section 10(23FD) - the worst of both worlds. The clause reverses that, and section 115UA(3) charges the rent in the unit holder's hands, section 10(23FD) having been amended by the same Finance Act to exclude income of the nature referred to in clause (23FCA) from the unit holder's exemption. ON THE WITHHOLDING, because the two limbs of section 194LBA are routinely confused. Section 194LBA(1) deducts ten per cent from a resident unit holder on the clause (23FCA) stream as it does on the clause (23FC) stream. Section 194LBA(3) deals with the clause (23FCA) stream paid to a non-resident or foreign company separately and at 'the rates in force', not at the five per cent that belongs to the interest limb of clause (23FC). Read the two sub-sections side by side before certifying a deduction. WHAT THE CLAUSE DOES NOT DO. It says nothing about capital gains on the sale of a directly held asset, which stay in the trust's total income under section 115UA(2) read with sections 111A and 112; and nothing about a distribution that is repayment of debt, which since 1 April 2024 is caught in the unit holder's hands by section 56(2)(xii). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. Income of a business trust that is a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by that trust, is not included in the trust's total income and is therefore not charged in the trust's hands under section 115UA(2). It is instead charged in the unit holder's hands under section 115UA(3), section 10(23FD) having been amended by the same Finance Act to exclude income of the nature referred to in clause (23FCA) from the unit holder's exemption. The clause is confined to a real estate investment trust and to assets owned directly by it.
TaxSphere, “Statutory position — s.10(23FCA): a REIT's exemption for rent from real estate it owns directly, and why an InvIT cannot use it”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-10-23fca-a-reits-exemption-for-rent-from-real-estate-it-owns-directly/ (validity last checked 2026-09-09)
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