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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

Under section 223(1) of the Income-tax Act, 2025, income distributed by a business trust to its unit holders is treated in the unit holder's hands in which manner?

Distributed income keeps its character. Under section 223(1), income paid by a business trust to unit holders is deemed to be of the same nature and in the same proportion in the unit holder's hands as it was when received by or accrued to the trust.

  1. AAs income from other sources irrespective of its original nature
  2. BAs exempt income in all cases
  3. CAs income of the same nature and in the same proportion as received by or accrued to the business trustCorrect
  4. DAs capital gains only

Explanation

Section 223(1) provides a pass-through. Distributed income is deemed to be of the same nature and in the same proportion in the unit holder's hands as it was in the business trust's hands. So interest stays interest and dividend stays dividend. Treating everything as other-sources income ignores this rule.

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