My client holds units in a listed REIT. Which part of what the trust distributes is taxable in his hands, and what does the trust itself pay tax on?
Section 115UA(1) makes the distributed income of a business trust retain, in the unit holder's hands, the same nature and proportion it had in the trust's, and section 115UA(3) charges to tax in the unit holder's hands the distributed income which is of the nature referred to in clause (23FC) or clause (23FCA) of section 10 — broadly, interest and dividend from the special purpose vehicle, and rent from directly held property. Everything else forming the trust's own total income is charged in the trust's hands at the maximum marginal rate under section 115UA(2), subject to sections 111A and 112; and since 1 April 2024 sub-section (3A) removes the character-retention rule altogether for a sum charged under section 56(2)(xii).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2015-04-01, reported as Chapter XII-FA, consisting of section 115UA, inserted by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014) with effect from 1 April 2015; the words "or clause (23FCA)" inserted in sub-section (3) by the Finance Act, 2015 (Act No. 20 of 2015) with effect from 1 April 2016; the words "sub-clause (a) of" inserted in sub-section (3) by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017 and omitted from it by the Finance Act, 2020 (Act No. 12 of 2020) with effect from 1 April 2021; sub-section (3A) inserted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2024. It bears on section 115UA, section 115UA(3A), section 10(23FC), section 10(23FCA), section 56(2)(xii), section 194LBA, section 2(13A), section 111A, section 112 of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions, Capital Gains, How Tax Law Is Read and TDS Defaults matters.
Practitioners repeatedly get this backwards by treating the trust as an exempt entity. It is not. Section 115UA(2) is a charging provision on the trust at the maximum marginal rate, and it bites on any income of the trust that is not carved out — a capital gain on the sale of an SPV holding, for example, is taxed in the trust's hands under section 115UA(2) read with sections 111A and 112, and reaches the unit holder as a distribution the character of which is preserved but which has already borne tax at trust level. The pass-through in sub-section (3) is confined to two clauses of section 10 and no more. Three drafting points then decide most computations. First, sub-section (3) as it now stands refers to the WHOLE of clause (23FC) and not to sub-clause (a) alone — earlier versions of the section, still visible on archived departmental pages stamped Year 2016 to Year 2019, read 'sub-clause (a) of clause (23FC)', which confined the pass-through to interest and left dividend outside it while dividend distribution tax was in force. Any computation for AY 2021-22 onwards must use the present wording. Second, sub-section (1) works on 'distributed income', so it operates on what is paid out and not on what the trust merely earns. Third, sub-section (4) obliges the payer to furnish a statement to the unit holder and to the prescribed authority — rules 12CA and Forms 64A and 64B — and that statement is the document from which the unit holder's return is built.
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 115UA, headed 'Tax on income of unit holder and business trust', reads in four sub-sections and, since 1 April 2024, an inserted sub-section (3A). Sub-section (1) provides that notwithstanding anything contained in any other provisions of the Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust. Sub-section (2) provides that subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate. Sub-section (3) provides that if in any previous year the distributed income or any part thereof received by a unit holder from the business trust is of the nature as referred to in clause (23FC) or clause (23FCA) of section 10, then such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year. Sub-section (3A), inserted by the Finance Act 2023 with effect from 1 April 2024, provides that the provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56 received by a unit holder from a business trust. Sub-section (4) requires the person responsible for making payment of the distributed income on behalf of the business trust to furnish a statement to the unit holder and to the prescribed authority within such time and in such form and manner as may be prescribed; the departmental footnote directs the reader to rule 12CA and Form Nos. 64A and 64B.
Statutory position — no holding is asserted; this entry reproduces statutory text. Distributed income of a business trust which is of the nature described in section 10(23FC) or section 10(23FCA) is charged in the unit holder's hands and retains its character; the trust's own total income is charged in the trust's hands at the maximum marginal rate subject to sections 111A and 112; and from 1 April 2024 the character-retention rule does not apply to a sum charged under section 56(2)(xii).
The scheme is a conduit built by three co-ordinated deemings rather than by an exemption. Sub-section (1) preserves character and proportion so that the unit holder is taxed as if he had earned the underlying income; sub-section (3) supplies the charge in his hands and fixes the year; and section 10, in clauses (23FC) and (23FCA), removes the same income from the trust's total income so that it is not taxed twice. What is left in the trust's total income after those exclusions is charged by sub-section (2) at the maximum marginal rate, with sections 111A and 112 preserved so that concessional capital-gains rates are not displaced by the maximum marginal rate. Sub-section (3A) had to be inserted in 2023 because the new charge in section 56(2)(xii) would otherwise have collided with sub-section (1): a sum taxed as income from other sources cannot at the same time be deemed to retain the character it had in the trust's hands, and sub-section (3A) resolves that by switching sub-section (1) off for that sum.
(3A) The provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56, received by a unit holder from a business trust.
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Handle my notice → Ask a CA on WhatsAppSection 115UA(1) makes the distributed income of a business trust retain, in the unit holder's hands, the same nature and proportion it had in the trust's, and section 115UA(3) charges to tax in the unit holder's hands the distributed income which is of the nature referred to in clause (23FC) or clause (23FCA) of section 10 — broadly, interest and dividend from the special purpose vehicle, and rent from directly held property. Everything else forming the trust's own total income is charged in the trust's hands at the maximum marginal rate under section 115UA(2), subject to sections 111A and 112; and since 1 April 2024 sub-section (3A) removes the character-retention rule altogether for a sum charged under section 56(2)(xii). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115UA, section 115UA(3A), section 10(23FC), section 10(23FCA), section 56(2)(xii), section 194LBA, section 2(13A), section 111A, section 112 of the Income Tax Act 1961. It is reported as Chapter XII-FA, consisting of section 115UA, inserted by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014) with effect from 1 April 2015; the words "or clause (23FCA)" inserted in sub-section (3) by the Finance Act, 2015 (Act No. 20 of 2015) with effect from 1 April 2016; the words "sub-clause (a) of" inserted in sub-section (3) by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017 and omitted from it by the Finance Act, 2020 (Act No. 12 of 2020) with effect from 1 April 2021; sub-section (3A) inserted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2024. Practitioners repeatedly get this backwards by treating the trust as an exempt entity. It is not. Section 115UA(2) is a charging provision on the trust at the maximum marginal rate, and it bites on any income of the trust that is not carved out — a capital gain on the sale of an SPV holding, for example, is taxed in the trust's hands under section 115UA(2) read with sections 111A and 112, and reaches the unit holder as a distribution the character of which is preserved but which has already borne tax at trust level. The pass-through in sub-section (3) is confined to two clauses of section 10 and no more. Three drafting points then decide most computations. First, sub-section (3) as it now stands refers to the WHOLE of clause (23FC) and not to sub-clause (a) alone — earlier versions of the section, still visible on archived departmental pages stamped Year 2016 to Year 2019, read 'sub-clause (a) of clause (23FC)', which confined the pass-through to interest and left dividend outside it while dividend distribution tax was in force. Any computation for AY 2021-22 onwards must use the present wording. Second, sub-section (1) works on 'distributed income', so it operates on what is paid out and not on what the trust merely earns. Third, sub-section (4) obliges the payer to furnish a statement to the unit holder and to the prescribed authority — rules 12CA and Forms 64A and 64B — and that statement is the document from which the unit holder's return is built. If it applies to you, the first step is this: Start from the Form 64B statement the trust is obliged to give the unit holder under section 115UA(4) and split the distribution into section 10(23FC) interest, section 10(23FC) dividend, section 10(23FCA) rent, and residue.
Section 115UA, headed 'Tax on income of unit holder and business trust', reads in four sub-sections and, since 1 April 2024, an inserted sub-section (3A). Sub-section (1) provides that notwithstanding anything contained in any other provisions of the Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust. Sub-section (2) provides that subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate. Sub-section (3) provides that if in any previous year the distributed income or any part thereof received by a unit holder from the business trust is of the nature as referred to in clause (23FC) or clause (23FCA) of section 10, then such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year. Sub-section (3A), inserted by the Finance Act 2023 with effect from 1 April 2024, provides that the provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56 received by a unit holder from a business trust. Sub-section (4) requires the person responsible for making payment of the distributed income on behalf of the business trust to furnish a statement to the unit holder and to the prescribed authority within such time and in such form and manner as may be prescribed; the departmental footnote directs the reader to rule 12CA and Form Nos. 64A and 64B. The matter was decided on 2015-04-01 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 of a business trust which is of the nature described in section 10(23FC) or section 10(23FCA) is charged in the unit holder's hands and retains its character; the trust's own total income is charged in the trust's hands at the maximum marginal rate subject to sections 111A and 112; and from 1 April 2024 the character-retention rule does not apply to a sum charged under section 56(2)(xii).
The scheme is a conduit built by three co-ordinated deemings rather than by an exemption. Sub-section (1) preserves character and proportion so that the unit holder is taxed as if he had earned the underlying income; sub-section (3) supplies the charge in his hands and fixes the year; and section 10, in clauses (23FC) and (23FCA), removes the same income from the trust's total income so that it is not taxed twice. What is left in the trust's total income after those exclusions is charged by sub-section (2) at the maximum marginal rate, with sections 111A and 112 preserved so that concessional capital-gains rates are not displaced by the maximum marginal rate. Sub-section (3A) had to be inserted in 2023 because the new charge in section 56(2)(xii) would otherwise have collided with sub-section (1): a sum taxed as income from other sources cannot at the same time be deemed to retain the character it had in the trust's hands, and sub-section (3A) resolves that by switching sub-section (1) off for that sum. In the words reproduced by the source cited on this page: "(3A) The provisions of sub-section (1) shall not apply in respect of any sum referred to in clause (xii) of sub-section (2) of section 56, received by a unit holder from a business trust."
It was decided by the CBDT Circulars & Instructions on 2015-04-01 and is reported as Chapter XII-FA, consisting of section 115UA, inserted by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014) with effect from 1 April 2015; the words "or clause (23FCA)" inserted in sub-section (3) by the Finance Act, 2015 (Act No. 20 of 2015) with effect from 1 April 2016; the words "sub-clause (a) of" inserted in sub-section (3) by the Finance Act, 2016 (Act No. 28 of 2016) with effect from 1 April 2017 and omitted from it by the Finance Act, 2020 (Act No. 12 of 2020) with effect from 1 April 2021; sub-section (3A) inserted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2024. 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 115UA, section 115UA(3A), section 10(23FC), section 10(23FCA), section 56(2)(xii), section 194LBA, section 2(13A), section 111A, section 112, 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 of a business trust which is of the nature described in section 10(23FC) or section 10(23FCA) is charged in the unit holder's hands and retains its character; the trust's own total income is charged in the trust's hands at the maximum marginal rate subject to sections 111A and 112; and from 1 April 2024 the character-retention rule does not apply to a sum charged under section 56(2)(xii). It arises in Charitable Trusts & Exemption, Capital Gains Exemptions, Capital Gains, How Tax Law Is Read and TDS Defaults matters, on section 115UA, section 115UA(3A), section 10(23FC), section 10(23FCA), section 56(2)(xii), section 194LBA, section 2(13A), section 111A, section 112 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. Offer the first three in the unit holder's return in the same character in which the trust earned them — interest as interest, rent as house property or business income as the case may be — because section 115UA(1) preserves the character and the proportion. Do not offer the residue under section 115UA at all; test it instead against section 56(2)(xii) for previous year 2023-24 onwards, because section 115UA(3A) has taken it out of sub-section (1). For the trust's own return, remember that section 115UA(2) is a charge at the maximum marginal rate on its total income, subject only to sections 111A and 112 — check whether any gain qualifies for those rates before applying the maximum marginal rate to it. Reconcile the unit holder's Form 26AS against section 194LBA: the withholding rates differ by residence and by the sub-clause of section 10(23FC) involved, so a mismatch is usually a classification difference and not a short deduction. If you are reading a departmental section 115UA page, check the 'Year:' stamp before relying on it — the bare /w/section-115ua page is stamped Year 2014 and carries neither the reference to clause (23FCA) nor sub-section (3A).
Still good law. The present text of section 115UA, including sub-section (3A), was read in full on three departmental pages carrying different 'Year:' stamps — Year 2023, Year 2024 (No. 1) and Year 2024 (No. 2) — which agree word for word, and the Bangalore Tribunal in Embassy Office Parks REIT v. DCIT (ITA No. 221/Bang/2025, pronounced 8 July 2026) describes the same scheme at its paragraphs 19 and 26. The insertion of Chapter XII-FA by Act No. 25 of 2014 with effect from 1 April 2015, and of sub-section (3A) by Act No. 8 of 2023 with effect from 1 April 2024, were read from departmental footnotes. No page stamped Year 2025 or Year 2026 for this section was located this pass, so a Finance Act 2025 or 2026 amendment has not been ruled out. The words of sections 10(23FC), 10(23FCA) and 10(23FD) were not read and are not stated 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.
The departmental section 115UA pages form a clean legislative sequence and the suffix does NOT track vintage, so each was dated from its own 'Year:' stamp: /w/section-115ua is stamped Year 2014 and refers only to clause (23FC); -1 is stamped Year 2015 and adds 'or clause (23FCA)' with the footnote 'Italicised words inserted by Finance Act, 2015, effective 1-4-2016'; -2 (Year 2016) and -3 (Year 2017) and -5 (Year 2019 (No. 2)) narrow sub-section (3) to 'sub-clause (a) of clause (23FC) or clause (23FCA)'; -8 (Year 2023), -9 (Year 2024 (No. 1)) and -10 (Year 2024 (No. 2)) print the present text, referring to the whole of clause (23FC) and carrying sub-section (3A). The page stamped Year 2021 supplies the amendment that restored the reference to the whole of clause (23FC): it prints sub-section (3) with the omitted words marked and carries footnote 4, 'Words "sub-clause (a) of" Omtt. by the Act No. 12 of 2020, w.e.f. 1-4-2021.' Act No. 12 of 2020 is the Finance Act, 2020, and that footnote is the source of the statement in this entry that the present wording governs from assessment year 2021-22. The page stamped Year 2017 carries the converse footnote 84, 'Ins. by Act No. 28 of 2016 (w.e.f. 1-4-2017).' The -10 page carries footnote 83, 'Ins. by the Act No. 8 of 2023, w.e.f. 1-4-2024.' Two limits on this entry. (1) The words of sections 10(23FC), 10(23FCA) and 10(23FD) themselves were NOT read this pass: the department's section 10 pages are so long that every fetch truncated inside clause (12D) or clause (23C), and no other authoritative full text was reached. What those clauses cover is stated here only as far as it can be derived from the text of sections 115UA and 194LBA, which name them, and from the Bangalore Tribunal's description in Embassy Office Parks REIT. Do not quote clause (23FC) or (23FCA) from this entry. (2) The suffixes -60 and -63 for section 115UA return 404, so the 'low sixties' cluster does not exist for this section. The date in `decided_on` is the date on which Chapter XII-FA, consisting of section 115UA, came into force — 1 April 2015 — and not a decision date; this is a statutory entry and there is no decision behind it. 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 of a business trust which is of the nature described in section 10(23FC) or section 10(23FCA) is charged in the unit holder's hands and retains its character; the trust's own total income is charged in the trust's hands at the maximum marginal rate subject to sections 111A and 112; and from 1 April 2024 the character-retention rule does not apply to a sum charged under section 56(2)(xii).
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