The Central Board of Direct Taxes (CBDT) has revised its rules to enhance the accuracy and transparency of income reporting distributed to unit holders by trusts, which are used to pool investments.

The Income-tax (Fifth Amendment) Rules, 2025, which were notified on Monday, require entities like real estate and infrastructure investment trusts and securitization trusts to provide more detailed reporting to improve tax compliance.

The updated rules also introduce new forms for reporting income and its distribution to investors by trusts. These forms have been updated to reflect recent legislative changes and to adjust 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.

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 about 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.

According to Gidwani of Nangia Andersen LLP, the changes are mainly focused on simplifying the language and updating the forms to align with the current taxation framework for business trusts, funds, and ARC trusts, as well as their respective investors. Additionally, certain separate disclosures have been introduced.