Taxation of dividend in the hands of unit holders of business trust

Hi everyone 

In case the Special purpose vehicle opts for Alternate tax regime u/s 115 BAA, then dividend distributed by business trust to unit holders will be taxable in the hands of unit holders and it is exempt if the SPV not opts for 115 BAA.

Can someone clarify the intention behind it. Why the tax treatment is different for both the cases ( SPV Opts /  not opt for 115 BAA ) ?

Please correct me if i am wrong.

Thanks in advance.

 

Replies (2)
Quick Summary
This discussion explores the differing tax treatment of dividends distributed by a Special Purpose Vehicle (SPV) to unit holders of a business trust, depending on whether the SPV opts for the Alternate Tax Regime under Section 115BAA. When the SPV opts for 115BAA, dividends are taxable in the hands of unit holders. However, if the SPV does not opt for 115BAA, these dividends are exempt for unit holders under Section 10(23FD). The query seeks clarification on the legislative intent behind this distinction, while noting that dividends received by the business trust itself remain exempt regardless of the SPV's tax regime choice.

For Unit Holders (UH)

If an SPV is paying tax on its profit under Section 115BAA at the lower rates, the profit distributed to unit-holders(UH) by way of dividend through business trust, would not be exempt from tax (i.e taxed in hands of UH) 

If SPV does not opt for 115BAA then SPV shall be paying tax at higher rates on its profit so when such SPV further distributes dividend to UH through Business Trusts , it has been exempted in the hands of Unit holders u/s 10(23FD)

For Business Trusts (REIT/INVIT)

To qualify as a REIT, the trust must distribute at least 90% of its taxable income to shareholders. In turn, REITs typically don't pay any corporate income taxes because their earnings have been passed along as dividend & Interest payments. 

Hence No matter SPV opts 115BAA or doesnt opt for 115BAA , Dividend income from SPV is exempt to Business Trust in both cases u/s 10(23FC) unlike unit holders.  

Thanks for your comment.

But my doubt here is taxability of dividend in the hands of shareholders differs when the SPV opts for 115BAA and not opted. What is the intention behind it.

I think i am clear with the question if not please let me know.

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