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

Under 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?

Income distributed by a business trust keeps its character in the unit holder's hands. Under section 223(1) it is deemed to be of the same nature and in the same proportion as received by or accrued to the trust, irrespective of other provisions of the Act.

  1. AAs income of the same nature and in the same proportion as it was received by or accrued to the business trustCorrect
  2. BAlways as income from other sources, regardless of its nature in the trust
  3. CEntirely as exempt income, since the trust has already paid tax
  4. DAs capital gains, regardless of the nature of the trust's income

Explanation

Section 223(1) provides that 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. The other options ignore this pass-through rule.

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