Pass through status to Category –I and II Alternative Investment Funds

Pass through status to Category –I and Category –II Alternative Investment Funds

The existing provisions of section 10(23FB) of the Act provide that any income of a Venture Capital Company (VCC) or a Venture Capital Fund (VCF) from investment in a Venture Capital Undertaking (VCU) shall be exempt from taxation. Section 11 5U of the Act provides that income accruing or arising or received by a person out of investment made in a VCC or VCF shall be taxable in the same manner, on current year basis, as if the person had made direct investment in the VCU.

These sections provide a tax pass through (i.e. income is taxable in the hands of investors instead of VCF/VCC) only to the funds, being set up as a company or a trust, which are registered (i) before 21.05.2012 as a VCF under SEBI (Venture Capital Funds) Regulations, 1996, or (ii) as venture capital fund being one of the sub-categories under category-I Alternative investment fund (AIF) regulated by SEBI (AIF) Regulations, 2012 w.e.f. 21.05.2012. The existing pass through is available only in respect of income which arises to the fund from investment in VCU (Venture Capital Undertaking), being a company which satisfies the conditions provided in SEBI (VCF) Regulations, 1996 or SEBI (AIF) Regulations, 2012 (AIF regulations) .

Under the AIF regulations, various types of AIFs have been classified under three separate categories as Category I, II and III AIFs. Category I includes AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the Government or regulators consider as socially or economically desirable. Category II AIFs are funds including private equity funds or debt funds which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements. Category III AIFs are funds which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. The funds can be set up as a trust, company, limited liability partnership and any other body corporate. Similarly, investment by AIFs can be in entities which can be a company, firm etc.

Pooled investment vehicles (other than hedge funds) engaged in making passive investments have been accorded pass through in certain tax jurisdictions. In order to rationalize the taxation of Category-I and Category-II AIFs (hereafter referred to as investment fund) it is proposed to provide a special tax regime. The taxation of income of such investment fund and their investors shall be in accordance with the proposed regime which is applicable to such funds irrespective of whether they are set up as a trust, company, or limited liability firm etc. The salient features of the special regime are:-

(i)      income of a person, being a unit holder of an investment fund, out of investments made in the investment fund shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person had the investments, made by the investment fund, been made directly by him.

(ii)     income in the hands of investment fund, other than income from profits and gains of business, shall be exempt from tax. The income in the nature of profits and gains of business or profession shall be taxable in the case of investment fund.

(iii)    income in the hands of investor which is of the same nature as income by way of profits and gain of business at investment fund level shall be exempt.

(iv)    where any income, other than income which is taxable at investment fund level, is payable to a unit holder by an investment fund, the fund shall deduct income-tax at the rate of ten per cent.

(v) the income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as if it had been received by, or had accrued or arisen to, the investment fund.

(vi)    if in any year there is a loss at the fund level either current loss or the loss which remained to be set off, the loss shall not be allowed to be passed through to the investors but would be carried over at fund level to be set off against income of the next year in accordance with the provisions of Chapter VI of the Income-tax Act.

(vii)   the provisions of Chapter XII-D (Dividend Distribution Tax) or Chapter XII-E (Tax on distributed income) shall not apply to the income paid by an investment fund to its unit holders.

(viii)the income received by the investment fund would be exempt from TDS requirement. This would be provided by issue of appropriate notification under section 1 97A(1 F) of the Act subsequently.

(ix) it shall be mandatory for the investment fund to file its return of income. The investment fund shall also provide to the prescribed income-tax authority and the investors, the details of various components of income, etc. for the purposes of the scheme.

Further, the existing pass through regime is proposed to be continued to apply to VCF/VCC which had been registered under SEBI (VCF) Regulations, 1996. Remaining VCFs, being part of Category-I AIFs, shall be subject to the new pass through regime.

Illustration

The broad features of the above regime can be explained through the following Examples. For simplicity, it is assumed that the investment fund has ten unit holders each having one unit and the income from investment in the investment fund is the only income of the unit holder.

Example 1: If in a previous year, the income stream of the investment fund consists of:

Income by way of capital gains	Rs. 800
Income from other sources	Rs. 200
Then:
Total Income of the investment fund	NIL
Total income of the unit holders	Rs. 1,000
Total income of a unit holder	Rs. 100
Break up:
Chargeable under the head “Capital gain”	Rs. 80
Chargeable under the head “Income from other sources	s. 20

Example 2: If in Example 1, the income stream of investment fund consists of:

Business income	Rs. 100
Income by way of capital gains	Rs. 700
Income from other sources	Rs. 200
Then:
Total Income of the investment fund	Rs. 100
(Tax shall be charged at applicable rate if investment fund is a company or a firm, else at maximum marginal rate)
Income arising to a unit holder	Rs. 100
Income of unit holder which is exempt	Rs. 10
Total income of a unit holder (chargeable to tax)	Rs. 90
Break up:
Chargeable under the head “Capital gain”	Rs. 70
Chargeable under the head “Income from other sources”	Rs. 20

 Example 3: If the income stream of the investment fund consists of:

Business Loss	Rs. 100
Capital gains Loss	Rs. 300
Income from other sources	Rs. 400
Then:
The business loss of Rs. 100 is set off against Income from other sources whereas Capital gain loss cannot be set off. The result is:
Total Income of the investment fund	NIL
(Loss of Rs. 300 remains at investment fund level to be carried forward for set off in subsequent years)
Income from other sources	Rs. 400
Then:
The business loss of Rs. 100 is set off against Income from other sources whereas Capital gain loss cannot be set off. The result is:
Total income of the unit holders	Rs. 300
Total income of a unit holder(Chargeable under the head “Income from other sources”)	Rs. 30

 Example 4: If in the previous year immediately succeeding the previous year mentioned in Example 3, the income stream of the investment fund consists of:

Business income	Rs. 100
Income by way of capital gains	Rs. 450
Income from other sources	Rs. 500
Then:
Total Income of the investment fund	Rs. 100
(Business income)
Exempt Income –
Capital Gain (Rs. 450 – Rs. 300)	Rs. 150
Income from other sources	Rs. 500
Income accruing or arising to the unit holders	Rs. 750
Income of a unit holder including exempt income	Rs. 75
Total Income of a unit holder	Rs. 65
Break up:
Exempt Income	Rs. 10
Chargeable under the head “Capital gain”	Rs. 15
Chargeable under the head “Income from other sources”	Rs. 50

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

NOTE ON CLAUSES 3, 7, 30, 32, 34 & 46

Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.

It is proposed to substitute clause (13A) of the said section in order to define a “business trust” to mean a trust registered as,–

(i)       an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992; or

(ii)      a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, and the units of which are required to be listed on a recognised stock exchange in accordance with the aforesaid regulations.

It is proposed to amend clause (15) of the aforesaid section to provide that the definition of charitable purpose shall include “yoga” as a separate category on the lines of education and medical relief.

It is further proposed to amend the said clause (15) to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless––

(i)       such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii)      the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.

It is also proposed to amend clause (37A) of the said section to provide that for the purposes of deduction of tax under section 194LBA, the “rates in force”, in relation to an assessment year or financial year shall mean the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year.

The existing provisions contained in clause (42A) of the said section provides the definition of the term “short-term capital asset”. Explanation 1 of the said clause provides for determining the period for which the capital asset is held by the assessee.

It is proposed to amend the clause (i) of the said Explanation to provide that in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xviii) of section 47, there shall be included the period for which the unit or units in the consolidating scheme of the mutual fund were held by the assessee.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment years.

Clause 7 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.

It is  proposed to insert a new clause (23EE) in the aforesaid section so as to provide for exemption in respect of any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Clause (23FB) of said section provides that any income of a venture capital company or venture capital fund from investment in a venture capital undertaking shall not be included in total income.

It is proposed to insert a proviso to the said clause to provide that the said clause shall not apply to a venture capital company or venture capital fund, being an investment fund specified in clause (a) of the Explanation 1 to section 115 UB, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2016.

It is further proposed to insert a new clause (23FBA) to provide that any income of an investment fund other than the income chargeable under the head “Profits and gains of business or profession” shall not be included in the total income of such fund.

It is also proposed to insert a new clause (23FBB) to provide that any income of a person accruing or arising to, or received by, a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “Profits and gains of business or profession” shall not be included in total income of such person.

It is proposed to insert a new clause (23FCA) so as to provide that any 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, shall not be included in the total income.

It is further proposed to amend (23FD) of the said section to provide that any distributed income, referred to in section 115UA, received by a unit holder from the business trust, being that proportion of the income which is of the same nature as income by way of renting or leasing or letting out any real estate asset owned directly by the business trust, shall be included in total income and not be exempted.

It is also proposed to amend clause (38) of the said section to provide that any income in the nature of long term capital gain arising from transfer of units of a business trust which were acquired in consideration of exchange of shares of a special purpose vehicle and on which securities transaction tax has been paid shall not be included in the total income of the sponsor.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent assessment years.

Clause 30 of the Bill seeks to amend section 115U of the Income-tax Act relating to tax on income in certain cases.

Section 11 5U of the Act provides that income accruing or arising or received by a person out of investment made in venture capital company or venture capital fund shall be taxable in the same manner, on current year basis, as if the person had made direct investment in the venture capital undertaking. The section further exempts the distribution by Venture capital company and the Venture capital fund to its investors from dividend distribution tax and tax deduction at source requirement.

It is proposed to amend the said section so as to provide that the existing pass through scheme contained in the provisions of section 10 (23FB) and section 115U shall not apply to such investment fund to which the new regime provided in section 10(23FBA) and section 115UB applies.

The amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years.

Clause 32 of the Bill seeks to insert a new Chapter XII-FB consisting of a new section 115UB in the Income-tax Act relating to tax on income of investment funds and income received from such funds.

Sub-section (1) of the proposed new section seeks to provide that any income accruing or arising to, or received by, a person, being a unit holder of an investment fund, out of investments made in the investment fund shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person had the investment made by the investment fund been made directly by him.

Sub-section (2) of the proposed new section seeks to provide that where in any previous year, the net result of computation of total income of the investment fund [without giving effect to the provisions of clause (23FBA) of section 10] is a loss, such loss shall be allowed to be carried forward and it shall be set-off by the investment fund in accordance with the provisions of Chapter VI and such loss shall not be allowed to be passed through to the investors.

Sub-section (3) of the proposed new section seeks to provide that the income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or had accrued or arisen to, the investment fund during the previous year subject to the provisions of sub-section (2).

Sub-section (4) of the proposed new section seeks to provide that the total income of the investment fund shall be charged to tax–

(i)       at the rate or rates as specified in the Finance Act of the relevant year, where such fund is a company or a firm; or

(ii)      at maximum marginal rate in any other case.

Sub-section (5) of the proposed new section seeks to provide that the provisions of Chapter XIID or Chapter XI IE shall not apply to the income paid by an investment fund under this Chapter.

Sub-section (6) of the proposed new section seeks to provide that the income accruing or arising to, or received by, the investment fund, during a previous year, if not paid or credited to the investor, shall subject to the provisions of the proposed sub¬section (2), be deemed to have been credited to the account of the said person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the income had it been paid in the previous year.

Sub-section (7) of the proposed new section seeks to provide that the person responsible for crediting or making payment of income on behalf of an investment fund and the investment fund shall furnish within such time as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant details as may be prescribed.

Explanation 1 to the proposed new section seeks to define certain terms such as “investment fund”, “trust” and “unit”.

Further, Explanation 2 to the proposed new section clarifies that if any income has been included in total income on accrual basis in case of a person, the same shall not be included in total income when such income is actually received by the person.

This amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years.

Clause 34 of the Bill seeks to amend section 139 of the Income-tax Act relating to return of income.

Section 139, inter alia, specifies certain persons which are required to file return of income.

The existing provisions contained in sub-section (4C) of the aforesaid section, inter alia, provide for filing return of income by certain entities where income is exempt under section 10 of the Act.

It is proposed to amend the said sub-section (4C) so as to provide that a university, hospital or other institution referred to in sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10 shall be required to furnish a return of income if the total income of such university, hospital or other institution without giving effect to provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax.

It is proposed to amend the said section to provide that every investment fund referred to in section 115UB, which is not required furnish return of income or loss under any other provisions of this section, shall furnish the return of its income in respect of its income or loss in every previous year and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1) of section 139.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent years.

Clause 46 of the Bill seeks to insert a new section 194LBB in the Income-tax Act relating to income in respect of units of investment fund.

The proposed new section seeks to provide that where any income other than that proportion of income which is of the same nature as income referred to in clause (23FBB) of section 10, is payable to a unit holder in respect of units of an investment fund specified in clause (a) of the Explanation 1 to section 115UB, the person responsible for making the payment shall, at the time of credit of such income to the account of payee, or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

This amendment will take effect from 1st June, 2015.

EXTRACT OF RELEVANT CLAUSES FROM FINANCE BILL 2015

3. Amendment of section 2.

In section 2 of the Income-tax Act, with effect from the 1st day of April, 2016,—

(a) for clause (13A), the following clause shall be substituted, namely:—

‘(13A) “business trust” means a trust registered as,—

(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992; or(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, and or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

(i)       such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii)      the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;”;

(c)      in clause (37A), in sub-clause (iii), after the words “for the purposes of deduction of tax under”, the words, figures and letters “section 194LBA or” shall be inserted;

(d)      in clause (42A), in the Explanation 1, in clause (i), after sub-clause (hc), the following sub-clause shall be inserted, namely:—

“(hd) in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xviii) of section 47, there shall be included the period for which the unit or units in the consolidating scheme of the mutual fund   were held by the assesse;”.

7. Amendment of section 10.

In section 10 of the Income-tax Act,—

(I) after clause (11), the following clause shall be inserted, namely:—

“(11A) any payment from an account, opened in accordance with the Sukanya Samriddhi 5 of 1873. Account Rules, 2014 made under the Government Savings Bank Act, 1873;”;

(II)      in clause (23C), after sub-clause (iiia), the following sub-clauses shall be inserted, namely:— “(iiiaa) the Swachh Bharat Kosh, set up by the Central Government; or

 (iiiaaa) the Clean Ganga Fund, set up by the Central Government; or”;

(III)     with effect from the 1st day of April, 2016—

(a) after clause (23ED), the following clause shall be inserted, namely:—

‘(23EE) any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.

Explanation.—For the purposes of this clause,—

 (i) “recognised clearing corporation” shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 15 of 1992.;

(ii) “regulations” means the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 15 of 1992.;

(iii)     “specified income” shall mean,— (a) the income by way of contribution received from specified persons;

(b) the income by way of penalties imposed by the recognised clearing corporation and credited to the Core Settlement Guarantee Fund; or

(c) the income from investment made by the Fund;

(iv)     “specified person” shall mean,—

(a) any recognised clearing corporation which establishes and maintains the Core Settlement Guarantee Fund; and

(b) any recognised stock exchange being shareholder in such recognised clearing corporation;’;

(b)      in clause (23FB), before the Explanation, the following proviso shall be inserted, namely:—

“Provided that nothing contained in this clause shall apply in respect of any income of a venture capital company or venture capital fund, being an investment fund specified in clause

(a) of the Explanation 1 to section 11 5UB, of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2016;”;

(c)      after clause (23FB), the following clauses shall be inserted, namely:—

‘(23FBA) any income of an investment fund other than the income chargeable under the head “Profits and gains of business or profession”;

(23FBB) any income referred to in section 1 15UB, accruing or arising to, or received by, a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “Profits and gains of business or profession”.

Explanation.—For the purposes of clauses (23FBA) and (23FBB), the expression “investment fund” shall have the meaning assigned to it in clause (a) of the Explanation 1 to section 115UB;’;

(d)      after clause (23FC), the following clause shall be inserted, namely:—

‘(23FCA) any 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.

Explanation.—For the purposes of this clause, the expression “real estate asset” shall have the same meaning as assigned to it in clause (zj) of sub-regulation (1) of regulation 2 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.

(e)      in clause (23FD), after the word, brackets, figures and letters “clause (23FC)”, the words, brackets, figures and letters “or clause (23FCA)” shall be inserted;

(f) in clause (38), the second proviso shall be omitted.

30. Amendment of section 115U.

In section 115U of the Income-tax Act, after sub-section (5), before the Explanation 1, the following sub-section shall be inserted with effect from the 1st day of April, 2016, namely:—

“(6) Nothing contained in this Chapter shall apply in respect of any income, of a previous year relevant to the assessment year beginning on or after the 1st day of April, 2016, accruing or arising to, or received by, a person from investments made in a venture capital company or venture capital fund, being an investment fund specified in clause (a) of the Explanation 1 to section 115UB.”.

32. Tax on income of investment fund and its unit holders.

After Chapter XII-FA of the Income-tax Act, the following Chapter shall be inserted with effect from the 1st day of April, 2016, namely:—

‘CHAPTER XII-FB

SPECIAL PROVISIONS RELATING TO TAX ON INCOME OF INVESTMENT FUNDS AND INCOME RECEIVED FROM SUCH FUNDS

115UB. (1) Notwithstanding anything contained in any other provisions of this Act and subject to the provisions of this Chapter, any income accruing or arising to, or received by, a person, being a unit holder of an investment fund, out of investments made in the investment fund, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person had the investments made by the investment fund been made directly by him.

(2) Where in any previous year, the net result of computation of total income of the investment fund [without giving effect to the provisions of clause (23FBA) of section 10] is a loss under any head of income and such loss cannot be or is not wholly set-off against income under any other head of income of the said previous year, then,—

(i)       such loss shall be allowed to be carried forward and it shall be set-off by the investment fund in accordance with the provisions of Chapter VI; and

(ii)      such loss shall be ignored for the purposes of sub-section (1).

(3) The income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub-section (1), as it had been received by, or had accrued or arisen to, the investment fund during the previous year subject to the provisions of sub-section (2).

(4) The total income of the investment fund shall be charged to tax—

(i)       at the rate or rates as specified in the Finance Act of the relevant year, where such fund 35      is a company or a firm; or

(ii)      at maximum marginal rate in any other case.

(5) The provisions of Chapter XII-D or Chapter XII-E shall not apply to the income paid by an investment fund under this Chapter.

(6)      The income accruing or arising to, or received by, the investment fund, during a previous year, if not paid or credited to the person referred to in sub-section (1), shall subject to the provisions of sub-section (2), be deemed to have been credited to the account of the said person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the income had it been paid in the previous year.

(7)      The person responsible for crediting or making payment of the income on behalf of an investment fund and the investment fund shall furnish, within such time as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant details, as may be prescribed.

(a)      “investment fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992;

(b)      “trust” means a trust established under the Indian Trusts Act, 1882 or under any other law for the time being in force;

(c) “unit” means beneficial interest of an investor in the investment fund or a scheme of the investment fund and shall include shares or partnership interests.

Explanation 2.—For the removal of doubts, it is hereby declared that any income which has 10 been included in total income of the person referred to in sub-section (1) in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the investment fund.’.

34. Amendment of section 139.

In section 139 of the Income-tax Act, with effect from the 1st day of April, 2016,—

(I) in sub-section (4C), in clause (e),—

(a)      after the words “other educational institution referred to in”, the words, brackets, figures and letters “sub-clause (iiiab) or” shall be inserted;

(b)      after the words “other medical institution referred to in”, the words, brackets, figures and letters “sub-clause (iiiac) or” shall be inserted;

(II) after sub-section (4E), the following sub-section shall be inserted, namely:—

“(4F) Every investment fund referred to in section 115UB, which is not required to furnish return of income or loss under any other provisions of this section, shall furnish the return of income in respect of its income or loss in every previous year and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).”.

46. Insertion of new section 194LBB.

Income in respect of units of investment fund.

After section 194LBA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of June, 2015, namely:—

‘194LBB. Where any income, other than that proportion of income which is of the same nature as income referred to in clause (23FBB) of section 10, is payable to a unit holder in respect of units of an investment fund specified in clause (a) of the Explanation 1 to section 115UB, the person responsible for making the payment shall, at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

Explanation.—For the purposes of this section,—

(a)      “unit” shall have the meaning assigned to it in clause (c) of the Explanation 1 to section 115UB;

(b)      where any income as aforesaid is credited to any account, whether called “suspense account”  or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee, and the provisions of this section shall apply accordingly.’

( Compiled by Taxguru Team)