New Delhi: The Central Board of Direct Taxes (CBDT) has amended its rules to improve accuracy and transparency in reporting of income distributed to unit holders by trusts –vehicles used to pool in investments.
The Income-tax (Fifth Amendment) Rules, 2025, notified on Monday, mandate reporting by entities such as real estate and infrastructure investment trusts and securitization trusts in greater detail to improve tax compliance.
The amended rules also bring out new forms to be filled out for reporting of income and its distribution to investors by trusts. The forms are updated for recent legislative changes as well as to modify certain due dates.
Income reporting rules for trusts are significant because some of their earnings are not taxed at the level of the entity as they enjoy a pass-through status and are taxed only in the hands of the investor.
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The new rules impact compliance requirements for business trusts such as REITS and InvITs, investment funds like alternative investment funds (AIF) and asset reconstruction company (ARC) trusts relating to the pass-through income earned by them and the share of investors to be taxed in the hands of the investors, explained Sunil Gidwani, partner, Nangia Andersen LLP, a business advisory firm.
The changes are effective from Monday and hence, going forward, any compliance required, especially for financial year 2024-25, would have to be in line with the new rules, said Gidwani.
Business trusts and securitization trusts are required to furnish details of the income distributed by them in a prescribed statement to the tax department as well as to the unit holders on an annual basis, added Anita Basrur, partner at Sudit K. Parekh & Co. LLP, an audit and tax service firm.
These statements were required to be furnished by 30 June after the close of the financial year to the unit holders and to the income tax department by 30 November. As per the latest notification, the due date for furnishing the statement to the income-tax department has been advanced from 30 November to 15 June which has brought business trusts and securitization trusts at par with AIFs, explained Basrur.
Also, the forms in relation to business trusts, securitization trusts and AIFs have been modified to give effect to the change in capital gains tax rates pronounced in Finance Act 2024, said Basrur.
The changes are primarily aimed at simplifying the language and updating the forms in line with the current scheme of taxation of the business trusts, funds and ARC trusts and their respective investors, in addition to certain separate disclosures, said Gidwani of Nangia Andersen LLP. (ends)
