Section 115UA of ITA, 1961 : Section 115Ua: Tax On Income Of Unit Holder And Business Trust

Explanation using Example

Imagine a company named RealEstate Investment Trust (REIT) which operates as a business trust. REIT owns various commercial properties and earns rental income. This income, after deducting expenses, is distributed to the unit holders (investors) of REIT.

According to Section 115UA(1) of the Income-tax Act, 1961, when REIT distributes this rental income to its unit holders, the income retains its character as rental income when it reaches the hands of the unit holders. For example, if REIT receives 100% of its income from rentals, the distributed income to unit holders is also treated as rental income for them.

Under Section 115UA(2), REIT's income itself is taxed at the maximum marginal rate before distribution. This means that the trust pays taxes on its income before distributing it to the unit holders.

As per Section 115UA(3), if a unit holder receives a part of the distributed income which is exempt for the business trust under certain clauses of Section 10, then this part of the income will be taxable in the hands of the unit holder. This ensures that income which is not taxable when earned by the trust, becomes taxable when distributed to the unit holders.

Finally, Section 115UA(4) requires REIT to provide a statement to both the unit holders and the prescribed authority detailing the nature and amount of income distributed. This helps in maintaining transparency and allows unit holders to file their taxes correctly.