Income Tax Act 2025: Section 223 for Tax Year 2026-27

Tax on income of unit holder and business trust

[Section-223 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 223(1) of Income Tax Act 2025

223(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.

Section 223(2) of Income Tax Act 2025

223(2) Subject to the provisions of sections 196 and 197, the total income of a business trust shall be charged to tax at the maximum marginal rate.

Section 223(3) of Income Tax Act 2025

223(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.

Section 223(4) of Income Tax Act 2025

223(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.

Section 223(5) of Income Tax Act 2025

223(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 prescribed, giving the details of the nature of the income paid during the tax year and such other details, as prescribed.

FAQs on Section 223 of Income Tax Act 2025

What is the nature of income received by a unit holder from a business trust under Section 223(1)?
The income distributed by a business trust to its unit holders is deemed to have the same nature and to be in the same proportion as it was when received or accrued to the business trust.

How is the income of a business trust taxed according to Section 223(2)?
The total income of a business trust is charged to tax at the maximum marginal rate, subject to the provisions of sections 196 and 197.

What is the tax treatment for income distributed by a business trust that falls under Schedule V, Table: Sl. No. 3 or 4?
If the income distributed to a unit holder is of the nature specified in Schedule V, Table: Sl. No. 3 or 4, it is deemed to be the income of the unit holder and is taxed as their income for that tax year.

Does Section 223(1) apply to all sums received by unit holders?
No, Section 223(1) does not apply to sums referred to in Section 92(2)(k) received by a unit holder from a business trust.

What obligations does the person responsible for distribution have under Section 223(5)?
The person making payment of the distributed income on behalf of the business trust must furnish a statement to both the unit holder and the prescribed authority, detailing the nature and amount of income paid during the tax year, in the prescribed form, time, and manner.

Are unit holders taxed on the same type of income the business trust receives?
Yes, the unit holders are taxed on the same type of income and in the same proportion as received by the business trust, except for specific exclusions under Section 92(2)(k).

What is the implication of “maximum marginal rate” for a business trust’s income?
It means the entire income of the business trust is taxed at the highest applicable rate without any basic exemption or slab benefit.

What is the relevance of Section 92(2)(k) in the context of business trust income distribution?
Any sum received by a unit holder that falls under Section 92(2)(k) is excluded from the deeming provision of Section 223(1), and is treated separately for tax purposes.