Schedule V explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Schedule V to the Income-tax Act, 2025 lists income of certain eligible persons, including investment funds, business trusts and their unit holders, that is not included in total income. This article covers serial numbers 1 to 6 of its Table, with Notes 1 to 4: income of an investment fund and its unit holders, interest, dividend and rental income of business trusts, distributed income in the hands of unit holders, and income from venture capital undertakings. Serial numbers 7 and 8 are in our note on Schedule V, serial numbers 7 and 8.
This explanation is as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026. Under section 1(3) the Act came into force on the 1st April, 2026, save as otherwise provided. Later amendments, rules and notifications should be checked. For where the earlier Act's provisions on exempt income sit in the 2025 Act, see our mapping note on exemptions and the Schedules.
Schedule V (brought in by section 11) excludes from total income the income in column B of the eligible persons in column C, subject to column D. An investment fund is not charged on income other than business or profession income (serial number 1), and its unit holder is not charged on the proportion that is of the same nature as business income already dealt with under section 224 (serial number 2). A business trust is excluded on interest and dividend from a special purpose vehicle (serial number 3) and, if a real estate investment trust, on rent from real estate it owns directly (serial number 4). Serial number 5 cuts back the unit holder's exclusion for those three kinds. For planning questions on funds and trusts see tax planning advisory.
The Table and its columns
The Schedule is headed "Income not to be included in total income of certain eligible persons including investment funds, business trusts and their unit holders". The Table has four columns: A (serial number), B (income not to be included in total income), C (eligible persons) and D (conditions). The expressions used have the meanings given in the Notes below the Table.
Serial numbers 1 and 2: investment funds and their unit holders
| Serial number | Income (column B) | Eligible persons (column C) | Conditions (column D) |
|---|---|---|---|
| 1 | Any income other than the income chargeable under the head "Profits and gains of business or profession" | An investment fund | Nil |
| 2 | Any income referred to in section 224, accruing or arising to, or received, being that proportion of income which is of the same nature as income chargeable under the head "Profits and gains of business or profession" | A unit holder of an investment fund | Nil |
Note 1 says that for serial numbers 1 and 2, "investment fund" has the meaning assigned in section 224(10)(a). Section 224 itself is outside this note; read it for the way income is dealt with in the hands of the fund and its unit holders.
Serial numbers 3 and 4: business trusts
| Serial number | Income (column B) | Eligible persons (column C) | Conditions (column D) |
|---|---|---|---|
| 3 | Any income by way of (a) interest received or receivable from a special purpose vehicle; or (b) dividend received or receivable from a special purpose vehicle | A business trust | Nil |
| 4 | Any income by way of renting or leasing or letting out any real estate asset owned directly by such business trust | A business trust, being a real estate investment trust | Nil |
Note 2: for serial number 3, "special purpose vehicle" means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the law under which such trust is granted registration. Note 3: for serial numbers 4 and 5, "real estate asset" has the same meaning as in regulation 2(1)(zj) of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992). These regulations are another law; check them separately.
Serial number 5: unit holder of a business trust
| Serial number | Income (column B) | Eligible persons (column C) | Conditions (column D) |
|---|---|---|---|
| 5 | Any distributed income referred to in section 223 | Any unit holder of a business trust | Exemption shall not be allowed on that proportion of the income which is of the same nature as (a) interest received or receivable from a special purpose vehicle by the business trust; or (b) dividend received or receivable from a special purpose vehicle by the business trust (in a case where the special purpose vehicle has exercised the option under section 200); or (c) income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust |
The Table is cut by a page header in the middle of the condition; the three limbs (a), (b) and (c) are read together as one condition. Section 200, to which clause (b) refers, is explained in our note on section 200. The way serial number 5 works is that the three kinds of income that serial numbers 3 and 4 already deal with in the trust are not excluded again in the hands of the unit holder; the unit holder is excluded on the rest of the distributed income.
Serial number 6: venture capital
| Serial number | Income (column B) | Eligible persons (column C) | Conditions (column D) |
|---|---|---|---|
| 6 | Any income from investment in a venture capital undertaking | Venture capital company or venture capital fund other than an investment fund specified in section 224(10)(a) | Nil |
Note 4: definitions for serial number 6
(a) "Venture capital company" means a company which:
- (i) has been granted a certificate of registration, before the 21st May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996; or
- (ii) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, and fulfils these conditions: (A) it is not listed on a recognised stock exchange; (B) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of a venture capital undertaking; and (C) it has not invested in any venture capital undertaking in which its director or a substantial shareholder (a beneficial owner of equity shares exceeding 10% of its equity share capital) holds, individually or collectively, equity shares in excess of 15% of the paid-up equity share capital of that undertaking.
(b) "Venture capital fund" means a fund:
- (i) operating under a trust deed registered under the Registration Act, 1908 (16 of 1908), which (A) was granted a certificate of registration, before the 21st May, 2012, as a Venture Capital Fund and is regulated under the 1996 Regulations; or (B) has been granted registration as a Venture Capital Fund as a sub-category of Category I Alternative Investment Fund under the 2012 Regulations, or as referred to in regulation 18(2) of the International Financial Services Centres Authority (Fund Management) Regulations, 2022, and fulfils (I) investment of not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of a venture capital undertaking, (II) no investment in a venture capital undertaking in which its trustee or the settler holds, individually or collectively, equity shares in excess of 15% of its paid-up equity share capital, (III) its units, if any, are not listed on any recognised stock exchange, and (IV) any other condition as may be prescribed; or
- (ii) operating as a venture capital scheme made by the Unit Trust of India.
(c) "Venture capital undertaking" means (i) a venture capital undertaking as defined in regulation 2(n) of the 1996 Regulations; or (ii) one as defined in regulation 2(1)(aa) of the 2012 Regulations.
The regulations named are other instruments, quoted as printed; check them separately.
| Serial number | Eligible person | Income excluded | Condition |
|---|---|---|---|
| 1 | Investment fund | Income other than business or profession income | Nil |
| 2 | Unit holder of investment fund | Section 224 proportion of the nature of business income | Nil |
| 3 | Business trust | Interest or dividend from a special purpose vehicle | Nil |
| 4 | Real estate investment trust | Rent or lease income of real estate asset owned directly | Nil |
| 5 | Unit holder of business trust | Distributed income under section 223, except the three limbs | Proportion test |
| 6 | Venture capital company or fund | Income from a venture capital undertaking | Nil |
A worked example (names and amounts assumed)
Mr. Suresh is a unit holder of the Harbourline Realty Trust, a business trust that is a real estate investment trust. In a tax year it distributes Rs. 1,00,000 to him as income referred to in section 223. Of the income of the trust from which the distribution is made, 30% is interest from a special purpose vehicle, 20% is rent from real estate assets owned directly, and the remaining 50% is of other kinds. (All figures are assumed.)
- Serial number 5 does not allow exemption on the proportion of the same nature as interest from a special purpose vehicle and as rent from real estate owned directly: 30% + 20% = 50% of Rs. 1,00,000 = Rs. 50,000.
- The remaining 50% = Rs. 50,000 of the distribution is within serial number 5 and is not included in his total income.
- The Rs. 50,000 on which exemption is not allowed is dealt with as the Act otherwise provides; Schedule V does not say how it is taxed.
Need help with fund or trust income?
Investment funds, business trusts and their unit holders each follow a different row, and the percentages of each kind of income matter. Our tax planning advisory team can look at your holdings and distributions.
Key takeaways
- An investment fund is excluded on income other than business or profession income (serial number 1).
- A unit holder of an investment fund is excluded on the section 224 proportion of income of the nature of business income (serial number 2).
- A business trust is excluded on interest and dividend from a special purpose vehicle, and a real estate investment trust on rent or lease income from real estate it owns directly (serial numbers 3 and 4).
- A unit holder of a business trust does not get exclusion on the proportions of the same nature as those income streams (serial number 5).
- Venture capital companies and funds are covered for income from a venture capital undertaking, with definitions in Note 4 (serial number 6).
Read next
- Schedule V, serial numbers 7 and 8: income of specified persons from investments in India
- Schedule IV, serial numbers 9 to 14: foreign companies and other persons
- Section 200: the 22 per cent company regime
- Schedules XI to XIII of the Income-tax Act 2025
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.