Taxation of Capital Gain Income of Business Trust & Unit Holders - Income Tax - Ready Reckoner - Income Tax

Taxation of Capital Gain Income of Business Trust Unit Holders A. Taxation of Capital Gain Income of Business Trust Any income in the nature of capital gain in the hands of shareholder of Special purpose vehicle (SPV) shall be exempt u/s 47(xvii) , it means there will be no capital gain on any transfer of a capital asset being the share of SPV to business trust in exchange of unit allotted by that trust to the transferor. Explanation for the purpose of this clause the meaning of SPV shall be as mentioned above and for the purpose of cost of acquisition in the hands of shareholder of SPV u/s 49(2AC) . The asset shall be deemed to be the cost of acquisition to him of the share refer to in that clause. Where the total income of an assessee includes any income chargeable under the head Capital gains arising from the transfer of short-term capital asset, being an equity share in a company or a unit of an equity oriented fund or unit of a business trust and- Particulars Tax payable by the assessee on the total income shall be the aggregate of- The transaction of sale of such equity share or unit is entered into on or after 14.10.2004 (a) The amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent; and Such transaction is chargeable to securities transaction tax, (b) The amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee; Provided further that the provisions of this section shall not apply in respect of any income arising from transfer of units of a business trust which were acquired by the assessee in consideration of a transfer as referred to in clause (xvii) of section 47 . Exemption in respect of long term capital gains u/s 10(38) in respect of specified securities section:- 10(38) Any income arising from The transfer of a long-term capital asset Being an equity share in a Company or A unit of an equity oriented fund or a unit of a business trust where- The transaction of sale of such equity share or unit is entered into on or after 1.10.2004 and Such transaction is chargeable to securities transaction tax. Provided further that the provisions of this clause shall not apply in respect of any income arising from transfer of units of a business trust which were acquired in consideration of a transfer referred to in clause (xvii) of section 47. B. Taxation of capital gains arising to Unit Holder Long term capital gains on sale of units of business trust on sale of which STT is paid is exempt in hands of unit holders under section 10(38) . However, such long term gains shall not be exempt of 10(38) in hands of shareholders who were allotted units of business trust in exchange of shares in the SPV. Such long term capital gains are chargeable on the sale of units of business trust in hands of shareholders. Such indexation under second provision to section 48 is available. Short term capital gains on sale of units of business trust on sale of which STT is paid is taxable in hands of unitholders @ 15% as per provisions of section 111A. However, such short term gains on sale of units of business trust shall not be taxable under section 111A but shall be taxable at normal tax rates in hands of the shareholders who were allotted units of business trust in exchange of shares in SPV. C. Capital gains arising to Shareholders of SPV at the time of exchange of shares in SPV for units of the Business Trusts-taxation deferred till sale of units In case of capital gains arising to the shareholders of SPV at the time of exchange of shares in SPV with units of business trusts, the taxation of gains shall be deferred and taxed at the time of disposal of units by the shareholders. The capital gains shall be exempt in the hands of the shareholders under section 47(xvii) when they transfer shares in SPV to business trust in exchange of units of business trust. Capital gain will arise when the shareholders sells the units of business trust. Further, for the purpose of computing capital gain, the cost of these units shall be considered as cost of the shares to the shareholders. The holding period of shares shall also be included in the holding period of such units. D. Long term capital gains on disposal of assets of Business Trust The income by way of long term capital gains on disposal of assets by the trust shall be taxable in the hands of the trust at the applicable rate under section 112 . However, if such capital gains are distributed, then the component of distributed income attributable to capital gains would be exempt in the hands of the unit holders. Any other income of trust shall be taxable at the maximum marginal rate. Explanation Any income in the nature of capital gain in the hands of shareholder of Special purpose vehicle (SPV) shall be exempt u/s 47(xvii) , it means there will be no capital gain on any transfer of a capital asset being the share of SPV to business trust in exchange of unit allotted by that trust to the transferor. For the purpose of meaning of SPV shall be as mentioned above and for the purpose of cost of acquisition in the hands of shareholder of SPV u/s 49(2AC) . The asset shall be deemed to be the cost of acquisition to him of the share refer to in that clause. For the purpose of period of holding u/s 2(42A), For computing the period of holding: (hc) in the case of a capital asset, being a unit of a business trust, allotted pursuant to transfer of share or shares as referred to in clause (xvii) of section 47 , there shall be included the period for which the share or shares were held by the assessee. Where the total income of an assessee includes any income chargeable under the head Capital gains arising from the transfer of short-term capital asset, being an equity share in a company or a unit of an equity oriented fund or unit of a business trust and- Particulars Tax payable by the assessee on the total income shall be the aggregate of- The transaction of sale of such equity share or unit is entered into on or after 14.10.2004 (a) The amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent; and Such transaction is chargeable to securities transaction tax, (b) The amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee; Provided further that the provisions of this section shall not apply in respect of any income arising from transfer of units of a business trust which were acquired by the assessee in consideration of a transfer as referred to in clause (xvii) of section 47.