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      Comparison of SCHEDULE V "INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS INCLUDING INVESTMENT FUNDS, BUSINESS TRUSTS AND THEIR UNIT HOLDERS" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

      18 September, 2025

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      SCHEDULE V - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS INCLUDING INVESTMENT FUNDS, BUSINESS TRUSTS AND THEIR UNIT HOLDERS

      Income-tax Act, 2025

      At a Glance

      SCHEDULE V (See section 11) sets out categories of income that are excluded from total income for specified eligible persons, including investment funds, business trusts, venture capital vehicles and certain foreign sovereign/pension wealth investors. It matters to institutional investors, business trusts (including REITs/InvITs), alternative investment funds, venture capital entities, and certain foreign public investment vehicles. Effective date or decision date: Not stated in the document.

      Background & Scope

      The Schedule is framed as a supplementary schedule to the Income Tax Bill, 2025, relying on section 11 for placement ("See section 11"). It creates explicit exclusions from "total income" for defined classes of persons and specified income streams, subject to conditions set out in the Table and Notes. The Schedule relies heavily on cross-references to other statutory provisions and external regulatory instruments (SEBI regulations, RBI notifications, IFSC Regulations). Definitions relevant to the Table are supplied in a series of Notes (Note 1 through Note 5). The Schedule does not otherwise provide legislative history or policy rationales. Definitions provided include "investment fund" (Note 1 by cross-reference to section 224(10)(a)), "special purpose vehicle" (Note 2), "real estate asset" (Note 3 via SEBI REIT regulation), definitions for "venture capital company/fund/undertaking" (Note 4), and an expansive Note 5 defining "specified person" and related concepts (investee, loan and borrowing, eligible infrastructure entity, eligible AIF, eligible domestic company, eligible NBFC, eligible InvIT).

      Statutory Provision Mode

      Text & Scope

      The Schedule operates as a negative list: when computing total income for the tax year of an eligible person (column C), specified income (column B) "shall not be included", subject to conditions (column D) and meanings in the Notes. The Table has eight numbered entries:

      • Sl. No.1: Entire income other than "Profits and gains of business or profession" is excluded for an "investment fund" (meaning per section 224(10)(a)).
      • Sl. No.2: A unit-holder of an investment fund will not include any income referred to in section 224 that accrues/arises/is received to that unit-holder being the proportion of income which is of the same nature as income chargeable under "Profits and gains of business or profession".
      • Sl. No.3: A business trust is exempt from including interest/dividend received or receivable from a "special purpose vehicle" (defined as an Indian company in which the trust holds controlling interest and any specific percentage as required by registration law).
      • Sl. No.4: A business trust that is a real estate investment trust is exempt from including income by way of renting/leasing/letting out real estate assets owned directly by such trust (with "real estate asset" cross-referenced to SEBI REIT regulation 2(1)(zj)).
      • Sl. No.5: Any unit holder of a business trust is not required to include distributed income u/s 223, subject to carve-outs: exemption will not be allowed to the extent the distributed income is of the same nature as (a) interest from an SPV to the business trust, (b) dividend from an SPV to the business trust where SPV exercised option u/s 200, or (c) income of a REIT by renting/leasing/letting directly owned real estate.
      • Sl. No.6: Venture capital companies or venture capital funds (other than being an "investment fund" per section 224(10)(a)) are exempt from including income from investment in a venture capital undertaking, subject to the detailed definitions in Note 4.
      • Sl. No.7: A broad exemption for "specified persons" from including dividend, interest, certain sums referred to in section 92(2)(k), or long-term capital gains arising from investments in India (debt/equity/units) is set out, subject to detailed conditions in clause (a)-(h). Conditions include investment dates (on or after 1 April 2020 and on or before 31 March 2030), minimum holding period of three years, specified types of investee entities, guideline-making powers for the Board with parliamentary oversight, clawback where conditions are no longer met, proportional calculation rules for partially invested entities, and an express exclusion where sovereign wealth or pension funds have loans/borrowings for investment in India.
      • Sl. No.8: Income falling sections 10(23F)/(23FA) of the Income-tax Act, 1961 is excluded subject to conditions specified in those sections.

      Interpretation

      The Schedule is drafted to provide targeted tax neutrality/exemption for institutional investment vehicles and certain foreign public investors, with protective conditions and calculation rules. Interpretive principles implicit in the text include reliance on external definitions and regulatory instruments to determine qualifying investments (SEBI/AIF/RBI instruments). The Schedule grants the Board guideline-making power for interpretive/implementation difficulties in respect of Sl. No.7, subject to prior approval of the Central Government and parliamentary laying, and states such guidelines will be binding on the Income-tax Authority and the specified person.

      Exceptions/Provisos

      The Schedule contains several carve-outs: Sl. No.5 limits exemption for unit-holders where the distributed income is of the same nature as certain income streams (interest/dividend from SPV; REIT rental income). Sl. No.7 contains multiple provisos including time limits for investment, holding periods, investment type restrictions, proportional computation rules for mixed investments, a clawback on failure to satisfy conditions, and an explicit non-eligibility where sovereign funds/pension funds have borrowings for the purpose of investment in India.

      Illustrations

      • Example 1: An investment fund (as per section 224(10)(a)) receives dividend and interest but does not carry on a business. Under Sl. No.1, that income other than "Profits and gains of business or profession" is not included in total income. (Text supports exclusion; specific mechanics of computation are "Not stated in the document.")
      • Example 2: A business trust (not a REIT) receives interest from an SPV in which it has controlling interest. Sl. No.3 excludes interest received from an SPV from the trust's total income. (No further procedure for documentation or withholding given in the Schedule: "Not stated in the document.")
      • Example 3: A sovereign wealth fund that borrowed to finance its investment into an eligible infrastructure entity in India. Note 5(h) expressly deems such a fund not eligible for exclusion. (Effect is exclusion of the tax benefit.)

      Interplay

      The Schedule expressly interacts with section 224 and section 223 of the principal Act, and with sections 10(23F)/(23FA) of the Income-tax Act, 1961. It also depends on SEBI regulations (REIT Regulations, AIF Regulations), IFSC Regulations, RBI notifications/directions and other external instruments for qualifying definitions and regulatory thresholds. The Schedule contemplates guidelines by the Board in certain situations, which will be binding once issued with Central Government approval and laid before Parliament.

      Differences between SCHEDULE V - Income-tax Act, 2025 (Document 1) and Income Tax Bill, 2025 - Old Version (Document 2)

      • Scope descriptions and defined cross-references: Document 1 uses phrasing like "being an eligible InvIT" in Note 5(f) whereas Document 2 says "a business trust" in Sl. No. 7(iii)(A). There are several small differences in the wording of definitions and cross-references (for instance, section references where Document 1 cites section 138 generally and Document 2 cites section 138(11) in Note 5(d)).
        • Practical impact: Potential for interpretive nuance. Where a provision in the Bill cites a more specific sub-clause (e.g., 138(11)), it narrows or clarifies the statutory hook; where the Act uses a broader reference, administrative or judicial interpretation may be slightly more expansive. However, based on the two documents provided, these are editorial variations and would need authoritative consolidation to determine any change in legal effect.
      • Clarifications in Note language: Document 2's Notes include different parenthetical or explanatory labels (e.g., "hereinafter referred to as..."/"as provided herein") that are absent or phrased differently in Document 1.
        • Practical impact: Mostly drafting style differences; where Document 2 explicitly states "as provided herein" or "as prescribed," there is a clear pointer to internal calculation or prescription requirements. Document 1 sometimes uses slightly different language but does not materially change obligations.
      • References to regulatory instruments: In Note 4 and other notes, Document 2 contains slightly different citations and elaborations of the SEBI/AIF/IFSC statutory instruments and RBI directions (for example, mention of "Infrastructure Debt Fund - Non-Banking Financial Companies (Reserve Bank) Directions, 2011" in Document 2 versus other RBI instruments or phrasing in Document 1).
        • Practical impact: Could affect which external regulations are treated as the relevant regulatory standard for qualifying entities; in practice, tax administrators and regulated entities will look to the final consolidated law text and the referenced regulation texts for compliance. On face value, these are drafting distinctions requiring harmonisation with the final statute/regulations.
      • Eligibility carve-outs for specified persons: Both documents set out an extensive definition of "specified person" in Note 5. The Act (Document 1) and Bill (Document 2) are materially similar, but there are small syntactic differences (e.g., the Act explicitly lists "eligible InvIT" in some parts).
        • Practical impact: No clear substantive difference from the provided text; any practical impact depends on which of the two wordings is enacted and the interpretive approach of authorities.

      Practical Implications

      • Compliance and risk areas: Entities seeking the exclusions must track qualifying status under multiple regulatory frameworks (SEBI/AIF/RBI) and the temporal/holding period conditions for Sl. No.7 (investment window 1 April 2020-31 March 2030; three-year hold). Failure to satisfy conditions triggers clawback charging the income in the tax year of failure.

      • Record-keeping/evidence: While the Schedule does not specify documentary requirements, the text implies that entities will need to maintain evidence of investment dates, holding durations, proportions of qualifying investments (for proportional computations), registration/certification under SEBI/RBI frameworks, and the absence of borrowings for sovereign/pension funds where applicable. Specific forms, timelines or procedural steps are "Not stated in the document."

      Key Takeaways

      • SCHEDULE V provides targeted exclusions from total income for investment funds, business trusts (including REITs), venture capital vehicles and certain foreign public investment vehicles.
      • Exemptions are conditional: e.g., timing and minimum holding periods for specified persons, and carve-outs for income of the same nature as SPV interest/dividend or REIT rentals.
      • Important definitions and thresholds are supplied by cross-reference to other statutes and regulatory rules (SEBI, RBI, IFSC), making qualification dependent on compliance with those external regimes.
      • The Board is empowered to issue guidelines for Sl. No.7 with Central Government approval and parliamentary laying; such guidelines will be binding when issued.
      • There is an explicit non-eligibility rule where sovereign/pension funds have loans or borrowings for the purpose of making investments in India.
      • Several provisions require proportional computation when qualifying vehicles have less than 100% investment/lending in eligible entities; the detailed method is to be prescribed.
      • Procedural details (filing, certificates, timelines, documentary proof, rates) are generally not set out in this Schedule and are "Not stated in the document."

      Full Text:

      SCHEDULE V - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS INCLUDING INVESTMENT FUNDS, BUSINESS TRUSTS AND THEIR UNIT HOLDERS

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