Tax on Business Trusts, Investment Funds and Unit Holders
Former Sections 115UA and 115UB of the Income-tax Act, 1961 dealt with the pass-through taxation of business trusts and specified investment funds. From 1 April 2026, the Income-tax Act, 2025 is the operative statute, and the corresponding provisions are principally Sections 223 and 224.
Business trusts: Section 115UA and current Section 223
Section 115UA formed part of the special regime for business trusts under the Income-tax Act, 1961. Its central pass-through rule treated income distributed by a business trust as having the same nature and proportion in the hands of the unit holder as it had in the hands of the trust. The current Income-tax Act, 2025 carries this principle into Section 223.
How the current rule works
Under Section 223, income distributed by a business trust generally keeps its character and proportion when attributed to unit holders. The business trust's total income is otherwise chargeable at the maximum marginal rate, subject to the special capital-gains provisions referred to in Sections 196, 197 and 198 of the 2025 Act. Certain distributed income identified in Schedule V is treated as income of the unit holder for the relevant tax year.
A separate rule excludes from the general pass-through mechanism a specified sum received by a unit holder that falls within Section 92(2)(k). This continues the special treatment introduced under the former law for specified distributions from a business trust.
Reporting obligation
The person responsible for making a distribution on behalf of a business trust must furnish the prescribed statement to the unit holder and the prescribed authority, with details of the nature of income and other prescribed particulars.
Investment funds: Section 115UB and current Section 224
Former Section 115UB established a pass-through regime for qualifying investment funds and their unit holders. The corresponding current provision is Section 224 of the Income-tax Act, 2025.
The basic rule is that qualifying income arising to a unit holder from investments made through the investment fund is taxed in broadly the same manner as if the unit holder had made those investments directly. This preserves the character of pass-through income instead of treating every distribution as a separate, uniform class of income.
Losses
Business losses of the investment fund remain at fund level for carry-forward and set-off under the applicable provisions and are not passed through to unit holders. For losses other than business losses, the statutory conditions include a minimum twelve-month holding requirement for the relevant unit before such loss can be passed through. The legislation also preserves the transitional treatment of eligible non-business losses accumulated at fund level as on 31 March 2019.
Income not actually distributed
The pass-through regime is not limited to cash distributions. Subject to the statutory loss rules, qualifying income that has accrued or arisen to the investment fund but has not been paid or credited can be deemed credited to unit holders at the end of the tax year in the proportion in which they would have been entitled to receive it.
Statements to unit holders and tax authority
The responsible person and the investment fund must furnish prescribed information about the nature and amount of income paid or credited, together with other required particulars, to the taxable unit holder and the prescribed income-tax authority.
Key definitions
Investment fund
For this special regime, an investment fund is a qualifying fund established or incorporated in India in an eligible legal form and registered as a Category I or Category II Alternative Investment Fund under the applicable SEBI framework, or regulated under the applicable IFSCA fund-management framework, subject to the wording of the current statute.
Unit
A unit broadly represents the beneficial interest of an investor in the investment fund or a scheme of the fund and can include shares or partnership interests where the statute so provides.
Business trust
Business trusts include structures such as qualifying Real Estate Investment Trusts and Infrastructure Investment Trusts that satisfy the statutory and regulatory definition. Their tax treatment depends on the nature of the underlying income and the specific distribution involved.
Business trust and investment fund: practical comparison
| Point | Business trust | Investment fund |
|---|---|---|
| Former 1961 Act provision | Section 115UA | Section 115UB |
| Current 2025 Act provision | Section 223 | Section 224 |
| Core concept | Character of distributed income generally flows through to unit holders, subject to special rules. | Qualifying income is generally taxed as though the unit holder had invested directly, subject to special rules. |
| Loss treatment | Depends on the income and applicable provisions. | Specific statutory rules distinguish business loss from eligible non-business loss. |
| Compliance | Prescribed statement to unit holder and authority. | Prescribed statement to unit holder and authority. |
Why the old section numbers still matter
The Income-tax Act, 1961 continues to matter for periods and proceedings saved by the transition to the Income-tax Act, 2025. Accordingly, older assessments, appeals, orders, returns and judicial decisions may still refer to Sections 115UA and 115UB even though the current statute uses Sections 223 and 224.
Official legal resources
For current application, always verify the statutory text, relevant Schedules, Income-tax Rules, Finance Act rates and regulatory status of the trust or fund. The official links in the sidebar provide the current Income Tax Department and SEBI materials.
Updated: 28 September 2026. This article is a general legal and tax information resource and should be read with the applicable statute, rules, notifications and facts of the particular case.