Pass Through Income

Entities Eligible for Pass-Through Status

(a) Category I & II AIFs:

• Business income is taxable at the AIF level under Section 115UB, while exempt in the hands of unit holders under Section 10(23FBB).

• Other income is exempt for the AIF (Section 10(23FBA)) but taxable for unit holders at applicable rates under Section 115UB.

• Business losses cannot be passed to unit holders. Other losses can be passed unless units were held for less than 12 months.

• AIFs must report income distribution in Form 64C (to unit holders) and Form 64D (to tax authorities).

• Category III AIFs do not have pass-through status, making both the entity and investors liable for tax. Specified Category III AIFs benefit from tax exemptions (Sections 10(4D), 10(23FF), 10(23FBC)). Income from non-specified securities in Category III AIFs is taxed under Section 115AD at concessional rates.

(b) Securitisation Trusts:

• All income is exempt at the trust level (Section 10(23DA)).

• Tax is levied in the hands of investors at applicable rates under Section 115TCA.

• If income is not credited during the year, it is deemed credited on the last day of the previous year.

• Specified funds (under Section 10(4D)) are exempt from tax on business income from securitisation trusts, subject to conditions.

• Securitisation trust must report income distribution in Form 64F (to investors) and Form 64E (to tax authorities).

(c) Business Trusts (REITs & InvITs):

• Interest and dividends received from Special Purpose Vehicles (SPVs) are exempt (Section 10(23FC)) for the trust but taxable for unit holders.

• Dividend received from SPV (where SPV has not exercised option under Section 115BAA) is also exempt in the hands of unit holders (Section 10(23FD))

• Rental income from properties owned by a REIT is exempt at the trust level but taxable for investors (Section 10(23FCA)).

• Rental income from InVIT is taxable at the trust level.

• Any other income follows regular tax treatment, depending on its nature. If taxable at the trust level, it is exempt for unit holders, and if not taxable at the trust level, it is taxable for unit holders under Section 56(2)(xii). It excludes the issue price of units and any sum previously taxed under Section 56(2)(xii).

• Business trust must report statement of income in Form 64B (to investors) and Form 64A (to tax authorities).