Section 223 — Business Trust REIT InvIT Pass-Through | ITA 2025

Section 223 — - TAX ON BUSINESS TRUST INCOME AND UNIT HOLDER

Section 223 is the substantive equivalent of 1961 s. 115UA -- the PASS-THROUGH TAXATION FRAMEWORK for BUSINESS TRUSTS (REITs and InvITs) under SEBI REIT Regulations 2014 / InvIT Regulations 2014 / FA 2014 watershed. The provision creates a TWO-LEVEL pass-through: (i) trust-level: SPV income flows up as deemed-distribution; trust itself not taxed on most categories; (ii) unit-holder level: distribution character preserved (interest / dividend / SPV-distribution). FA 2023 introduced significant changes: non-income returns from trust treated as cost-reduction at unit-holder level (interaction with s. 72(4)). Practitioner: REITs (Embassy / Mindspace / Brookfield etc.) and InvITs (PowerGrid / IRB / India Grid etc.) are major practitioner-facing instruments. Investor's distribution income split into 4 streams per Sch. V Sl. 1-4.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on income of business trust unit holder

(1) Irrespective of anything contained in any other provisions of this 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.

(2) Subject to the provisions of sections 196, 197 and 198, the total income of a business trust shall be charged to tax at the maximum marginal rate.

(3) If in any tax 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 Schedule V (Table:

Sl. No. 3) or (Table: Sl. No. 4), 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 tax year.

(4) The provisions of sub-section (1) shall not apply in respect of any sum referred to in section 92(2)(k) received by a unit holder from a business trust.

(5) Any person responsible for making payment of the income distributed on behalf of a business trust to a unit holder, shall furnish a statement to the unit holder and the prescribed authority, within such time and in such form and manner, as may be prescribed, giving the details of the nature of the income paid during the tax year and such other details, as may be prescribed. Tax on income of investment fund and its unit holders.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 223	INCOME-TAX ACT, 1961 -- s. 115UA
Business trust pass-through architecture	1961 s. 115UA
FA 2014 Reit / InvIT regime	1961 s. 115UA [FA 2014]
FA 2023 non-income return treatment as cost reduction	1961 s. 115UA / s. 48 [FA 2023]

ARCHITECTURE: BUSINESS TRUST = REIT (Real Estate Investment Trust) or InvIT (Infrastructure Investment Trust) under SEBI REIT/InvIT Regulations. Trust holds underlying SPVs / commercial real estate / infrastructure assets. Unit-holders hold tradable trust units. FOUR DISTRIBUTION STREAMS (per Schedule V Sl. 1-4): (i) Sl. 1 - INTEREST income from SPVs to trust; passes through to unit-holder as IFOS chargeable; (ii) Sl. 2 - DIVIDEND from SPVs to trust; passes through to unit-holder as IFOS chargeable; (iii) Sl. 3 - INTEREST stream non-income (capital return) -- treated as COST REDUCTION at unit-holder level (FA 2023; s. 72(4)); (iv) Sl. 4 - RENTAL stream non-income (capital return) -- COST REDUCTION (FA 2023). TAX TREATMENT: - Trust level: most income exempt under 1961 s. 10(23FC) / 10(23FCA) preserved equivalent; - Unit-holder level: distribution character determines treatment. PRACTITIONER: REITs distribute typically 90% of distributable cash; FA 2023 cost-reduction treatment for non-income returns has changed economics; investors must track per-unit cost-base reduction.

CROSS-REFERENCES

Section 67 -- CG charge.
Section 72(4) -- Non-income return cost reduction (FA 2023).
Section 92(2)(k) -- Business trust IFOS chargeability.
Section 198 -- Business trust unit LTCG.
Schedule V Sl. 1-4 -- Business trust income definitions.
SEBI REIT Regulations 2014 / InvIT Regulations 2014.

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