My client holds units in a listed REIT. The Form 64B shows several components. Which of them does he actually pay tax on, and on what basis is the rest exempt?
Clause (23FD) of section 10 exempts, in the unit holder's hands, any distributed income referred to in section 115UA received by him from the business trust — but not the proportion of it that is of the same nature as the income referred to in sub-clause (a) of clause (23FC), or clause (23FCA), or sub-clause (b) of clause (23FC) in a case where the special purpose vehicle has exercised the option under section 115BAA. So the interest component and the direct-rent component are always taxable to him; the special purpose vehicle dividend component is taxable to him only if that vehicle is on the concessional corporate rate in section 115BAA, and is otherwise exempt; and everything else the trust distributes out of income that has already borne tax at trust level under section 115UA(2) is exempt. The words carrying the section 115BAA condition were put into the clause by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2021-04-01, reported as Section 10(23FD) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FD) as inserted by s.5(b) of the Finance (No. 2) Act, 2014, as amended by s.7(III)(e) of the Finance Act, 2015 and by s.7(II)(c) of the Finance Act, 2020. It bears on section 10(23FD), section 10(23FC), section 10(23FCA), section 115UA, section 115UA(2), section 115UA(3), section 115UA(3A), section 115BAA, section 194LBA, section 194LBA(2A), section 56(2)(xii), section Rule 12CA of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and TDS Defaults matters.
Clause (23FD) is the provision that stops the same rupee being taxed twice, and its structure is a set of carve-outs rather than a positive grant, so the only safe way to use it is to identify what is carved out and treat the remainder as exempt. Three consequences matter in practice. First, the exemption is not a general exemption for REIT and InvIT distributions: a reader who tells a client that "REIT income is exempt" will be wrong about the interest and the direct-rent components, which are the bulk of most distributions. Second, the section 115BAA condition is a fact about somebody else's tax position. The unit holder cannot work out his own liability without knowing whether the special purpose vehicle has exercised that option, and he has no way of finding out except from the trust's statement. This is the single most common source of a wrong return at the investor's end, and it is why the Form 64B statement under rule 12CA has to break the distribution down properly. Third, the whole clause is keyed to "distributed income referred to in section 115UA", so it has nothing to say about a sum charged under section 56(2)(xii). Section 115UA(3A), inserted by Act No. 8 of 2023 with effect from 1 April 2024, takes such a sum out of the character-retention rule in section 115UA(1) altogether, and it is charged as income from other sources. Do not look for relief for it in clause (23FD). The withholding machinery in section 194LBA is drafted to match the clause exactly, and can be used to check a doubtful reading: sub-section (2A) provides that nothing in sub-sections (1) and (2) applies to income of the nature referred to in sub-clause (b) of clause (23FC) of section 10 if the special purpose vehicle has not exercised the option under section 115BAA — which is the same switch, seen from the deductor's side.
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As inserted by section 5(b) of the Finance (No. 2) Act, 2014 with effect from 1 April 2015, the clause read: "any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in clause (23FC)". Section 7(III)(e) of the Finance Act, 2015 provided, with effect from 1 April 2016, that after the word, brackets, figures and letters "clause (23FC)", the words, brackets, figures and letters "or clause (23FCA)" shall be inserted. Section 7(II)(c) of the Finance Act, 2020 then provided, with effect from 1 April 2021, that for the words, brackets, letters and figures "in sub-clause (a) of clause (23FC)" — words which, as that substitution shows, were by then in the clause — the words quoted below shall be substituted. The departmental section 194LBA page stamped Year 2019 (No. 2) confirms independently that sub-clause (a) of clause (23FC) existed as a distinct stream before the 2020 amendment, and the page stamped Year 2024 (No. 2) confirms the sub-clause (a)/(b) split and the section 115BAA switch as they now stand.
Statutory position — no holding is asserted; this entry reproduces statutory text. Distributed income referred to in section 115UA received by a unit holder from a business trust is not included in his total income, except to the extent of the proportion of it that is of the same nature as (i) the income referred to in sub-clause (a) of clause (23FC), that is interest from a special purpose vehicle, (ii) the income referred to in sub-clause (b) of that clause, that is dividend from a special purpose vehicle, but only in a case where the special purpose vehicle has exercised the option under section 115BAA, and (iii) the income referred to in clause (23FCA), that is rent from real estate owned directly by a real estate investment trust. The condition at (ii) was introduced by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021.
Not applicable — statutory text.
in clause (23FD), for the words, brackets, letters and figures "in sub-clause (a) of clause (23FC)", the words, brackets, letters and figures "in sub-clause (a) of clause (23FC) or sub-clause (b) of said clause (in a case where the special purpose vehicle has exercised the option under section 115BAA)" shall be substituted;
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Handle my notice → Ask a CA on WhatsAppClause (23FD) of section 10 exempts, in the unit holder's hands, any distributed income referred to in section 115UA received by him from the business trust — but not the proportion of it that is of the same nature as the income referred to in sub-clause (a) of clause (23FC), or clause (23FCA), or sub-clause (b) of clause (23FC) in a case where the special purpose vehicle has exercised the option under section 115BAA. So the interest component and the direct-rent component are always taxable to him; the special purpose vehicle dividend component is taxable to him only if that vehicle is on the concessional corporate rate in section 115BAA, and is otherwise exempt; and everything else the trust distributes out of income that has already borne tax at trust level under section 115UA(2) is exempt. The words carrying the section 115BAA condition were put into the clause by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(23FD), section 10(23FC), section 10(23FCA), section 115UA, section 115UA(2), section 115UA(3), section 115UA(3A), section 115BAA, section 194LBA, section 194LBA(2A), section 56(2)(xii), section Rule 12CA of the Income Tax Act 1961. It is reported as Section 10(23FD) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FD) as inserted by s.5(b) of the Finance (No. 2) Act, 2014, as amended by s.7(III)(e) of the Finance Act, 2015 and by s.7(II)(c) of the Finance Act, 2020. Clause (23FD) is the provision that stops the same rupee being taxed twice, and its structure is a set of carve-outs rather than a positive grant, so the only safe way to use it is to identify what is carved out and treat the remainder as exempt. Three consequences matter in practice. First, the exemption is not a general exemption for REIT and InvIT distributions: a reader who tells a client that "REIT income is exempt" will be wrong about the interest and the direct-rent components, which are the bulk of most distributions. Second, the section 115BAA condition is a fact about somebody else's tax position. The unit holder cannot work out his own liability without knowing whether the special purpose vehicle has exercised that option, and he has no way of finding out except from the trust's statement. This is the single most common source of a wrong return at the investor's end, and it is why the Form 64B statement under rule 12CA has to break the distribution down properly. Third, the whole clause is keyed to "distributed income referred to in section 115UA", so it has nothing to say about a sum charged under section 56(2)(xii). Section 115UA(3A), inserted by Act No. 8 of 2023 with effect from 1 April 2024, takes such a sum out of the character-retention rule in section 115UA(1) altogether, and it is charged as income from other sources. Do not look for relief for it in clause (23FD). The withholding machinery in section 194LBA is drafted to match the clause exactly, and can be used to check a doubtful reading: sub-section (2A) provides that nothing in sub-sections (1) and (2) applies to income of the nature referred to in sub-clause (b) of clause (23FC) of section 10 if the special purpose vehicle has not exercised the option under section 115BAA — which is the same switch, seen from the deductor's side. If it applies to you, the first step is this: Take the Form 64B statement and split the distribution into four buckets: the sub-clause (a) interest component, the clause (23FCA) direct-rent component, the sub-clause (b) special purpose vehicle dividend component, and everything else. The first two are always taxable in the unit holder's hands.
As inserted by section 5(b) of the Finance (No. 2) Act, 2014 with effect from 1 April 2015, the clause read: "any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in clause (23FC)". Section 7(III)(e) of the Finance Act, 2015 provided, with effect from 1 April 2016, that after the word, brackets, figures and letters "clause (23FC)", the words, brackets, figures and letters "or clause (23FCA)" shall be inserted. Section 7(II)(c) of the Finance Act, 2020 then provided, with effect from 1 April 2021, that for the words, brackets, letters and figures "in sub-clause (a) of clause (23FC)" — words which, as that substitution shows, were by then in the clause — the words quoted below shall be substituted. The departmental section 194LBA page stamped Year 2019 (No. 2) confirms independently that sub-clause (a) of clause (23FC) existed as a distinct stream before the 2020 amendment, and the page stamped Year 2024 (No. 2) confirms the sub-clause (a)/(b) split and the section 115BAA switch as they now stand. The matter was decided on 2021-04-01 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. Distributed income referred to in section 115UA received by a unit holder from a business trust is not included in his total income, except to the extent of the proportion of it that is of the same nature as (i) the income referred to in sub-clause (a) of clause (23FC), that is interest from a special purpose vehicle, (ii) the income referred to in sub-clause (b) of that clause, that is dividend from a special purpose vehicle, but only in a case where the special purpose vehicle has exercised the option under section 115BAA, and (iii) the income referred to in clause (23FCA), that is rent from real estate owned directly by a real estate investment trust. The condition at (ii) was introduced by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021.
Not applicable — statutory text. In the words reproduced by the source cited on this page: "in clause (23FD), for the words, brackets, letters and figures "in sub-clause (a) of clause (23FC)", the words, brackets, letters and figures "in sub-clause (a) of clause (23FC) or sub-clause (b) of said clause (in a case where the special purpose vehicle has exercised the option under section 115BAA)" shall be substituted;"
It was decided by the CBDT Circulars & Instructions on 2021-04-01 and is reported as Section 10(23FD) of the Income-tax Act, 1961, as amended up to 2024; Clause (23FD) as inserted by s.5(b) of the Finance (No. 2) Act, 2014, as amended by s.7(III)(e) of the Finance Act, 2015 and by s.7(II)(c) of the Finance Act, 2020. 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(23FD), section 10(23FC), section 10(23FCA), section 115UA, section 115UA(2), section 115UA(3), section 115UA(3A), section 115BAA, section 194LBA, section 194LBA(2A), section 56(2)(xii), 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. Distributed income referred to in section 115UA received by a unit holder from a business trust is not included in his total income, except to the extent of the proportion of it that is of the same nature as (i) the income referred to in sub-clause (a) of clause (23FC), that is interest from a special purpose vehicle, (ii) the income referred to in sub-clause (b) of that clause, that is dividend from a special purpose vehicle, but only in a case where the special purpose vehicle has exercised the option under section 115BAA, and (iii) the income referred to in clause (23FCA), that is rent from real estate owned directly by a real estate investment trust. The condition at (ii) was introduced by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021. It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and TDS Defaults matters, on section 10(23FD), section 10(23FC), section 10(23FCA), section 115UA, section 115UA(2), section 115UA(3), section 115UA(3A), section 115BAA, section 194LBA, section 194LBA(2A), section 56(2)(xii), 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. For the dividend bucket, obtain the special purpose vehicle's section 115BAA position for the relevant year in writing. If it has exercised the option, that bucket is taxable to the unit holder; if it has not, it is exempt under clause (23FD) — and the trust should also not have deducted tax on it, because section 194LBA(2A) switches deduction off in that case. Treat the residual bucket as exempt, but be able to show why: it is distributed income referred to in section 115UA that is not of the nature of any of the carved-out streams, and it has already borne tax in the trust's hands under section 115UA(2). Reconcile the exempt figure in the return with the tax deducted under section 194LBA. A deduction made on a stream you are claiming as exempt is either a wrong deduction or a wrong claim, and the mismatch is what draws the notice. Do not use clause (23FD) for a repayment-of-debt distribution. Since 1 April 2024 that is a "specified sum" charged to the unit holder under section 56(2)(xii), and section 115UA(3A) disapplies the character-retention rule for it, so the clause (23FD) analysis does not reach it at all.
Searched for later treatment; none was found. That is not the same as a source affirming it. No amendment to clause (23FD) of section 10 after the Finance Act, 2020 change this entry already records is recorded. The clause amending section 10 in each of the Finance Bill, 2023, the Finance (No. 2) Bill, 2024 and the Finance Bill, 2025 has been checked on the Department's own texts, and clause (23FD) is not among the clauses touched in any of them. Two related changes, neither of which amends (23FD): the Finance Act, 2023 inserted s.56(2)(xii) with effect from 1 April 2024, charging a sum received by a unit holder from a business trust which is neither income referred to in s.10(23FC) or (23FCA) nor chargeable under s.115UA(2) — the charge this entry's cross-references already carry; and the Finance Act, 2025 amends s.115UA(2) to bring section 112A into the unit holder's capital gains computation with effect from 1 April 2026 (AY 2026-27). No consolidated text of the clause is set out here, so the statement of it rests on the amending-Act route. This states the law under the Income-tax Act, 1961, which governs every assessment year up to and including AY 2026-27 and the disputes arising from those years. 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.
A limit the reader should know about. Clause (23FD) is NOT quoted here as a single consolidated sentence, because no consolidated text of the clause was available for this entry — the consolidations of section 10 consulted all stop short of clause (23FD). What is set out above is assembled instead from three amending Acts, each read verbatim: the clause as inserted by section 5(b) of the Finance (No. 2) Act, 2014; the insertion of the words "or clause (23FCA)" by section 7(III)(e) of the Finance Act, 2015; and the substitution effected by section 7(II)(c) of the Finance Act, 2020, which is quoted in full below. It is independently corroborated by section 194LBA, whose sub-section (2A) turns on exactly the same section 115BAA condition. Whether any Finance Act after 2020 has further amended the clause is not established here. And the order in which the carve-outs appear in the consolidated clause is not asserted; only their content is, so do not take an ordinal for a carve-out from this page. 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. Distributed income referred to in section 115UA received by a unit holder from a business trust is not included in his total income, except to the extent of the proportion of it that is of the same nature as (i) the income referred to in sub-clause (a) of clause (23FC), that is interest from a special purpose vehicle, (ii) the income referred to in sub-clause (b) of that clause, that is dividend from a special purpose vehicle, but only in a case where the special purpose vehicle has exercised the option under section 115BAA, and (iii) the income referred to in clause (23FCA), that is rent from real estate owned directly by a real estate investment trust. The condition at (ii) was introduced by section 7(II)(c) of the Finance Act, 2020 with effect from 1 April 2021.
TaxSphere, “Statutory position — s.10(23FD): the unit holder's exemption for the rest of a business trust distribution, and the s.115BAA switch that decides whether SPV dividend is taxed in his hands”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-10-23fd-the-unit-holders-exemption-for-the-rest-of-the-distribution-and-the-115baa-switch/ (validity last checked 2026-09-09)
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