Keerthana Business Trust is registered under SEBI (Real Estate Investment Trusts) Regulations, 2014 provides the following particulars of its income for the previous year 2020-21: (i) Rental income from directly owned re

Tax consequences in the hands of the business trust and its unit holders: Rental income of ₹ 2.50 crore from directly owned real estate assets: Any income of a business trust, being a REIT, by way of renting or leasing or letting out any real estate asset owned directly by such business trust is exempt in the hands of the trust as per section 10(23FCA) of the Income-tax Act, 1961. Where the income by way of rent is credited or paid to a business trust, being a REIT, in respect of any real estate asset held directly by such REIT, no tax is deductible at source u/s 194-I. The distributed income or any part thereof, received by a unit holder from the REIT, which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such REIT is deemed income of the unit holder as per section 115UA(3) of the Income-tax Act, 1961. The business trust has to deduct tax at source @ 10% (7.5% for the period between 14.05.2020 to 31.03.2021) u/s 194LBA in case of distribution to a resident unit holder and at rates in force in case of distribution to a non-resident unit holder. The rental income component received from the business trust in the hands of each unit holder would be determined in the proportion as it has been received by or accrued to the business trust (i.e. ₹ 2.5/₹ 11.1) by virtue of section 115UA(1). Interest income of ₹ 4 crore from Birla Ltd: There would be no tax liability in the hands of business trust due to pass through status enjoyed by it under sub-clause (a) of section 10(23FC) in respect of interest income from Birla Ltd. being the special purpose vehicle. Therefore, Birla Ltd. is not required to deduct tax at source on interest payment to the business trust. The distributed income or any part thereof, received by a unit holder from the REIT, which is in the nature of interest income received or receivable from a SPV is deemed income of the unit holder as per section 115UA(3). The business trust has to deduct tax at source under section 194LBA - @ 10% (7.5% for the period between 14.05.2020 to 31.03.2021) on interest component of income distributed to resident unit holders; and @ 5% on interest component of income distributed to non-corporate non-resident and foreign companies' unit holders. Interest component of income distributed to unit holders is taxable in the hands of the unit holders @ 5%, in case of unit holders, being non-corporate non-residents or foreign companies; and at normal rates of tax, in case of resident unit holders. The interest component of income received from the business trust in the hands of each unit holder would be determined in the proportion of ₹ 4/₹ 11.1, by virtue of section 115UA(1). Dividend income of ₹ 2 crore from Birla Ltd.: The dividend distributed by the SPV to the business trust is exempt by virtue of section 10(23FC). Any distributed income referred to in section 115JJA, which is in the nature of dividend income received or receivable from SPV, in a case where the SPV has exercised the option u/s 115BAA, is taxable in the hands of unit-holders by virtue of section 10(23FC). However, since Birla Ltd. being a SPV does not opt for section 115BAA, dividend component is exempt in the hands of the unit holders. Consequently, business trust is not required to deduct tax at source on the dividend component distributed to the unit holders. Short-term capital gains of ₹ 1.50 crore on sale of listed shares of Birla Ltd.: As per section 115UA(2), the business trust is liable to pay tax @ 15% under section 111A in respect of short term capital gains on sale of listed shares of special purpose vehicle. There would however, be no tax liability on the capital gain component of income distributed to unit holders, by virtue of the exemption contained in section 10(23FD). Interest of ₹ 10 lakh received in respect of investment in unlisted debentures of real estate companies: Such interest is taxable @ 42.744%, being the maximum marginal rate, in the hands of the business trust, as per section 115UA(2). However, there would be no tax liability in the hands of the unit holders on the interest component of income distributed to them, by virtue of section 10(23FD). Short-term capital gains of ₹ 1 crore on sale of developmental properties: It is taxable at maximum marginal rate of 42.744% in the hands of the business trust as per section 115UA(2). There would be no tax liability in the unit holders on the capital gain component of income distributed to them, by virtue of the exemption contained in section 10(23FD).