Direct and Indirect Taxation · Income which does not form part of Total Income

Income of Specific Entities and Newly Established Units under Income-tax Act 2025

Updated 10 October 2026 · Fact-checked

Schedule V of the Income-tax Act, 2025 lists income that is not included in total income of investment funds, business trusts, their unit holders, venture capital entities and specified foreign investors. To solve a question, match the person to the row, check the income's nature, then test every condition, such as the three-year holding period.

Understand Income of Specific Entities and Newly Established Units

Schedule V works like a table with four columns. Column B is the income that is left out of total income. Column C is the person who gets the benefit. Column D is the condition. A benefit belongs to a particular person on a particular type of income. Change either and the exemption may disappear.

There are eight rows. Rows 1 and 2 cover an investment fund and its unit holders. Rows 3, 4 and 5 cover a business trust, a real estate investment trust (REIT) and their unit holders. Row 6 covers a venture capital company or fund for income from investment in a venture capital undertaking. Row 7 covers a specified person, such as a sovereign wealth fund or a pension fund, investing in Indian infrastructure-linked entities. Row 8 saves income under section 10(23F) and (23FA) of the 1961 Act, on the conditions given there.

Two ideas run through the table. First, the nature of income matters. An investment fund's income other than business income is left out of its total income (row 1). A business trust's interest and dividend from a special purpose vehicle (SPV) is left out (row 3). A REIT's rent from real estate it owns directly is left out (row 4). Second, the conditions can take the benefit back at a later stage. A unit holder does not get the exemption on the part of the distribution that is interest from the SPV, or rent from a REIT's directly owned real estate (row 5).

Row 7 is the condition-heavy row. The investment must be made on or after 1 April 2020 and on or before 31 March 2030, must be held for at least three years, and must be in an eligible InvIT, infrastructure entity, Alternate Investment Fund, domestic company or NBFC. If you later fail a condition, the income becomes chargeable in the tax year of the failure.

A note on SEZ units: the Schedule V text above does not deal with them. Tax incentives for units in a Special Economic Zone are a separate matter. Study them from your ICMAI material and do not mix them with Schedule V.

Key rules to remember

Investment fund (Sl. 1): Income of investment fund not included = all income other than income under the head 'Profits and gains of business or profession'; Business income of the fund is not covered by this row. No condition is attached.
Business trust (Sl. 3): Not included = interest or dividend received or receivable from a special purpose vehicle; An SPV is an Indian company in which the trust holds controlling interest and the shareholding required by the law under which it is registered.
REIT rent (Sl. 4): Not included = income from renting, leasing or letting out real estate asset owned directly by the REIT; Applies only to a business trust that is a real estate investment trust.
Unit holder of business trust (Sl. 5): Distributed income under section 223 not included, except the proportion that is (a) SPV interest or (b) REIT rent from directly owned real estate; The old exception for SPV dividend (clause b) is omitted by Act 21 of 2026 with effect from 1-4-2026, so it no longer denies the exemption.
Venture capital (Sl. 6): Income from investment in a venture capital undertaking is not included for a venture capital company or fund; Registration, 'not less than two-thirds of investible funds in unlisted equity or equity linked instruments' and the 15% limit are conditions of the definitions in Note 4. An investment fund specified in section 224(10)(a) is excluded from this row.
Specified person (Sl. 7) conditions: Investment made 1-4-2020 to 31-3-2030 AND held at least 3 years AND in an eligible entity; Income covered: dividend, interest, sums under section 92(2)(k), and long-term capital gains.
Eligibility thresholds in Note 5: Eligible AIF: not less than 50% investment. Eligible domestic company: set up and registered on or after 1-4-2021, minimum 75% investments. Eligible NBFC: minimum 90% lending; The AIF's 50% may be in eligible infrastructure entities, eligible domestic companies, eligible NBFCs or eligible InvITs. The domestic company's 75% investments and the NBFC's 90% lending must be in eligible infrastructure entities only. If the percentage is below 100%, the exempt income is worked out proportionately in the prescribed manner.
Loans and borrowings: Sovereign wealth fund or pension fund with loans or borrowings for investing in India = deemed not eligible for exclusion; Applies to Sl. 7 only.
Failure of condition: Condition fails in a later tax year = income previously left out becomes chargeable as income of that tax year; The income is taxed in the year of failure, not by reopening the earlier year.

How to solve Income of Specific Entities and Newly Established Units questions

Use the same method for any theory or numerical question on Schedule V. It keeps you on the right row and shows the examiner you tested each condition.

1Identify the person: investment fund, unit holder, business trust, REIT, venture capital company or fund, or specified person.
2Pick the matching row of Schedule V. If the person does not fit any row, no exemption arises under this Schedule.
3Classify each receipt by its nature: business income, interest from SPV, dividend from SPV, rent from directly owned real estate, long-term capital gain, and so on.
4Apply column B to decide whether that nature of income is left out for that person.
5Test column D conditions one by one: dates, holding period, percentages, type of investee, and whether the person has loans or borrowings.
6Check the exceptions. For a unit holder of a business trust, take out the proportion that is SPV interest or REIT rent.
7Total the exempt amount and the taxable amount, and show both. State that the taxable part goes to total income.
8Write the section or row reference and conclude in one line.

Quickest way: Row, nature, condition: the 3-check method

When to use it: Use it for 2-mark MCQs and for a short-note type answer when you have a few minutes.

Check 1, Row: who is the person? That tells you the row.
Check 2, Nature: is the income of the type named in column B (interest, rent, dividend, business income)?
Check 3, Condition: does column D have a date, a holding period, a percentage or an exception?
If any check fails, the income is not left out under that row.
For unit holders of business trusts, remember the exception: SPV interest and REIT rent in the distribution remain taxable.
For Sl. 7, the quick test is the date window (1-4-2020 to 31-3-2030), 3 years of holding, and an eligible investee.

Common mistakes in Income of Specific Entities and Newly Established Units

Treating all income of an investment fund as exempt.
Students remember 'investment fund exempt' and skip the exception in column B.
Fix: Sl. 1 leaves out only income other than business or profession income. Business income of the fund is not covered by this row.
Denying the unit holder's exemption on SPV dividend.
Older notes list SPV dividend as an exception to the unit holder's exemption.
Fix: Clause (b) of Sl. 5 is omitted by Act 21 of 2026 with effect from 1-4-2026. The remaining exceptions are SPV interest and REIT rent from directly owned real estate.
Applying REIT rent exemption to every business trust.
Both are called business trusts, so students merge Sl. 3 and Sl. 4.
Fix: Sl. 4 applies only to a business trust that is a REIT, and only to real estate it owns directly.
Ignoring the three-year holding and the date window in Sl. 7.
Students read the list of eligible investees and miss sub-clause (a)(i) and (ii).
Fix: Check the investment date (1-4-2020 to 31-3-2030) and the holding period of at least three years before anything else.
Forgetting that failure of a condition makes the income taxable later.
Students think an exemption once given is permanent.
Fix: If the specified person fails any condition in a later tax year, the income is chargeable as that tax year's income.
Mixing SEZ unit incentives with Schedule V.
The chapter heading groups new units with funds and trusts.
Fix: Schedule V does not cover SEZ units. Keep SEZ rules separate and take them from your ICMAI material.

Worked examples

Example 1

A REIT earns during the tax year: rent ₹40,00,000 from a real estate asset it owns directly, interest ₹30,00,000 from an SPV and dividend ₹10,00,000 from the same SPV. It distributes ₹1,00,000 to Mr. Ravi Sharma, a unit holder, and the distribution consists of ₹40,000 of rent, ₹40,000 of SPV interest and ₹20,000 of SPV dividend by nature. Treat the ₹1,00,000 as distributed income referred to in section 223. Find what is left out of total income at the trust level and what Ravi must include under Schedule V.

Show the solution

Trust level: the REIT is a business trust. Under Sl. 3, SPV interest ₹30,00,000 and SPV dividend ₹10,00,000 are left out.
Under Sl. 4, rent of ₹40,00,000 from real estate owned directly by the REIT is also left out. Total left out at trust level is ₹80,00,000.
Unit holder level: Sl. 5 leaves out the distributed income, but not the proportion that is SPV interest or REIT rent from directly owned real estate.
Taxable portion: rent ₹40,000 + SPV interest ₹40,000 = ₹80,000.
Exempt portion: SPV dividend ₹20,000. Sl. 5 itself leaves out distributed income, and this part no longer falls within any exception because clause (b), the old SPV dividend exception, is omitted with effect from 1-4-2026.
Check: ₹80,000 + ₹20,000 = ₹1,00,000.

Answer: At the trust level ₹80,00,000 is left out. Ravi includes ₹80,000 in total income and ₹20,000 is not included under Sl. 5.

Example 2

A foreign sovereign wealth fund, which satisfies all conditions of a specified person, has four investments in India. (A) Units of an eligible InvIT bought on 1 October 2021 and held for 4 years, up to 1 October 2025. (B) Shares of an eligible infrastructure entity bought on 15 March 2019. (C) Shares of an eligible infrastructure entity bought on 1 September 2024 and sold on 1 September 2026. (D) Shares of a domestic company set up and registered on 1 January 2021 that has 80% investments in eligible infrastructure entities. Which investments can give income that is not included in total income under Sl. 7?

Show the solution

Sl. 7 needs three things: investment made on or after 1-4-2020 and on or before 31-3-2030; held at least three years; and in an eligible investee.
A: made 1-10-2021, within the window. Held 4 years, so it passes the holding test. An eligible InvIT is an eligible investee. A qualifies.
B: made 15-3-2019, before 1-4-2020. It fails the date test. B does not qualify.
C: made 1-9-2024, within the window. Held for 2 years only, less than three. C fails.
D: an eligible domestic company must be set up and registered on or after 1-4-2021. This company was set up on 1-1-2021, so it fails even though the 75% test is met. D does not qualify.

Answer: Only investment A qualifies under Sl. 7.

Exam tips

MCQs usually test one detail: the date window, the three-year holding, the 50%, 75% or 90% thresholds, or the SPV interest exception. Learn these numbers cold.
In written answers, use the order person, row, nature, condition, conclusion. Each step carries marks.
State that Sl. 5 clause (b) is omitted by Act 21 of 2026 with effect from 1-4-2026. It shows you know the current law.
Use tax year and the 2025 Act terms, never 'assessment year'.
Where a question gives mixed receipts, show a small two-column split of exempt and taxable amounts.

Practice questions from Income which does not form part of Total Income

Income of Specific Entities and Newly Established Units: frequently asked questions

Does Schedule V cover SEZ units?

No. The Schedule V text covers funds, trusts, venture capital entities and specified persons. SEZ unit incentives are separate, so study them from your ICMAI material and keep them apart.

Is dividend from an SPV taxable in the hands of a unit holder of a business trust?

Not because of the old exception. Clause (b) of the conditions in Sl. 5 is omitted by Act 21 of 2026 with effect from 1-4-2026. The exceptions that remain are SPV interest and REIT rent from directly owned real estate.

What happens if a specified person sells the investment before three years?

The three-year holding condition is not met. If income was earlier left out and a condition fails in a later tax year, that income is chargeable as the income of that tax year.

Who is a specified person under Sl. 7?

The Act lists a wholly owned subsidiary of the Abu Dhabi Investment Authority, notified sovereign wealth funds, notified pension funds, the Public Investment Fund of Saudi Arabia and its wholly owned subsidiary. Each has its own conditions in Note 5.