Section 115UA of the income tax act, 1961,
INTER-ALIA, provides that notwithstanding 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. Further, subject to the provisions of Section 111A and Section
112, the total income of a business trust shall be charged to tax at the
maximum marginal rate (MMR). Maximum marginal rate or MMR, in relation to a
trust, shall refer to maximum marginal rate applicable as per finance act 2022,
which is 42.744%. Thus, it is interesting to note that while Section 115UA
taxes all income at MMR, it however provides exceptional relief for income in
the nature of long-term capital gain u/s 112 and short-term capital gain in
cases of income from transfer of equity shares or unit of equity oriented fund
or unit of business trust (where STT is payable on such transfer) u/s 111A, as an exception and allows them to be taxed at their usual rates. The usual rates are 20% for long-term capital gain u/s 112 and 15% for short-term capital gain
in the nature of income referred to in Section 111A above. Thus, it makes clear
that the purpose of this Section is to tax any income pertaining from the
special purpose vehicle to the business trust (other than the usual interest
and dividend it receives) at MMR except long term capital gain and short-term
capital gain u/s 112 and 111A respectively.
