My client is a fund registered with SEBI as a venture capital fund. Is it still on the old section 115U pass-through, or has it been moved to section 115UB, and what turns on the answer?
It depends on whether the fund is an "investment fund" within clause (a) of Explanation 1 to section 115UB — that is, whether it holds a certificate of registration as a Category I or a Category II Alternative Investment Fund. Sub-section (6) of section 115U provides that nothing contained in Chapter XII-F shall apply in respect of any income, of a previous year relevant to the assessment year beginning on or after 1 April 2016, accruing or arising to, or received by, a person from investments made in a venture capital company or venture capital fund being such an investment fund. So a fund that is a Category I or Category II AIF is out of section 115U and into section 115UB from the assessment year 2016-17. A fund that is not — for example one still holding a certificate under the older SEBI (Venture Capital Funds) Regulations, 1996 and not registered as a Category I or II AIF — is not taken out by sub-section (6) in terms. That distinction is being fought at the Tribunal and has not been settled.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-04-01, reported as Section 115U as printed on incometaxindia.gov.in/w/section-115u, Year stamp 2026; the parallel proviso to s.10(23FB) as inserted by s.7(III)(b) of the Finance Act, 2015 (indiankanoon.org/doc/127799810/); Explanation 1 to s.115UB on incometaxindia.gov.in/w/section-115ub, Year stamp 2026. It bears on section 115U, section 115U(4), section 115U(5), section 115U(6), section 10(23FB), section 115UB, section 10(23FBA), section 10(23FBB), section 194LBB of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and TDS Defaults matters.
The two Chapters look alike and are not. Section 115U(1) charges income accruing or arising to or received by a person out of investments made in a venture capital company or fund as if he had made the investment directly in the venture capital undertaking, and sub-section (3) preserves its nature and proportion — the same idea as section 115UB(1) and (3). But three things differ and each of them costs money. First, section 115U(4) provides that Chapter XII-D, Chapter XII-E and Chapter XVII-B shall NOT apply to income paid by a venture capital company or fund under the Chapter: that is a complete bar on withholding. Section 115UB has no such provision, and a fund inside section 115UB deducts under section 194LBB. Second, section 115U has no business-income carve-out at all — the split between fund-level and investor-level tax that clauses (23FBA) and (23FBB) of section 10 make for an investment fund simply does not exist here. Third, section 115U(5) deems income not paid or credited to have been credited on the last day of the previous year, and Explanation 2 then prevents it being taxed again when actually paid; section 115UB(6) and its Explanation 2 do the same for an investment fund, but section 115UB(6) is expressly made subject to sub-section (2), which is the loss provision, and section 115U(5) is not. The definitions in section 115U come from clause (23FB) of section 10 — Explanation 1 says so in terms — so the vocabulary of this Chapter is the SEBI venture capital vocabulary and not the AIF vocabulary of section 115UB. Running the two together is the commonest error in this area, and it is exactly the error a fund's assessment record will show if the Assessing Officer has been working from a checklist.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 115U stands in Chapter XII-F of the Income-tax Act, 1961. Sub-section (1) makes income accruing or arising to or received by a person out of investments made in a venture capital company or venture capital fund chargeable as if he had made the investment directly in the venture capital undertaking. Sub-section (2) requires a statement in the prescribed form to the person liable to tax and to the prescribed authority. Sub-section (3) preserves the nature and proportion of the income in his hands. Sub-section (4) disapplies Chapter XII-D, Chapter XII-E and Chapter XVII-B to income paid under the Chapter. Sub-section (5) deems undistributed income to have been credited on the last day of the previous year. Sub-section (6) shuts the Chapter for a venture capital company or fund that is an investment fund specified in clause (a) of Explanation 1 to section 115UB, for any previous year relevant to an assessment year beginning on or after 1 April 2016. Explanation 1 takes "venture capital company", "venture capital fund" and "venture capital undertaking" from clause (23FB) of section 10; Explanation 2 prevents income already taxed on accrual being taxed again when paid.
Statutory position — no holding is asserted; this entry reproduces statutory text. Chapter XII-F continues to apply to a venture capital company or venture capital fund as defined in section 10(23FB), with a full pass-through in section 115U(1) and (3), an express bar on Chapter XVII-B withholding in section 115U(4), accrual-basis taxation of the investor in section 115U(5) and protection against double taxation in Explanation 2. But by section 115U(6) nothing in the Chapter applies to income of a previous year relevant to an assessment year beginning on or after 1 April 2016 that accrues or arises to, or is received by, a person from investments made in a venture capital company or fund which is an investment fund specified in clause (a) of Explanation 1 to section 115UB — that is, a Category I or Category II Alternative Investment Fund. Such a fund is on section 115UB instead.
Not applicable — statutory text.
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.
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Handle my notice → Ask a CA on WhatsAppIt depends on whether the fund is an "investment fund" within clause (a) of Explanation 1 to section 115UB — that is, whether it holds a certificate of registration as a Category I or a Category II Alternative Investment Fund. Sub-section (6) of section 115U provides that nothing contained in Chapter XII-F shall apply in respect of any income, of a previous year relevant to the assessment year beginning on or after 1 April 2016, accruing or arising to, or received by, a person from investments made in a venture capital company or venture capital fund being such an investment fund. So a fund that is a Category I or Category II AIF is out of section 115U and into section 115UB from the assessment year 2016-17. A fund that is not — for example one still holding a certificate under the older SEBI (Venture Capital Funds) Regulations, 1996 and not registered as a Category I or II AIF — is not taken out by sub-section (6) in terms. That distinction is being fought at the Tribunal and has not been settled. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115U, section 115U(4), section 115U(5), section 115U(6), section 10(23FB), section 115UB, section 10(23FBA), section 10(23FBB), section 194LBB of the Income Tax Act 1961. It is reported as Section 115U as printed on incometaxindia.gov.in/w/section-115u, Year stamp 2026; the parallel proviso to s.10(23FB) as inserted by s.7(III)(b) of the Finance Act, 2015 (indiankanoon.org/doc/127799810/); Explanation 1 to s.115UB on incometaxindia.gov.in/w/section-115ub, Year stamp 2026. The two Chapters look alike and are not. Section 115U(1) charges income accruing or arising to or received by a person out of investments made in a venture capital company or fund as if he had made the investment directly in the venture capital undertaking, and sub-section (3) preserves its nature and proportion — the same idea as section 115UB(1) and (3). But three things differ and each of them costs money. First, section 115U(4) provides that Chapter XII-D, Chapter XII-E and Chapter XVII-B shall NOT apply to income paid by a venture capital company or fund under the Chapter: that is a complete bar on withholding. Section 115UB has no such provision, and a fund inside section 115UB deducts under section 194LBB. Second, section 115U has no business-income carve-out at all — the split between fund-level and investor-level tax that clauses (23FBA) and (23FBB) of section 10 make for an investment fund simply does not exist here. Third, section 115U(5) deems income not paid or credited to have been credited on the last day of the previous year, and Explanation 2 then prevents it being taxed again when actually paid; section 115UB(6) and its Explanation 2 do the same for an investment fund, but section 115UB(6) is expressly made subject to sub-section (2), which is the loss provision, and section 115U(5) is not. The definitions in section 115U come from clause (23FB) of section 10 — Explanation 1 says so in terms — so the vocabulary of this Chapter is the SEBI venture capital vocabulary and not the AIF vocabulary of section 115UB. Running the two together is the commonest error in this area, and it is exactly the error a fund's assessment record will show if the Assessing Officer has been working from a checklist. If it applies to you, the first step is this: Establish, from the SEBI certificate, which registration the fund actually holds: a Venture Capital Fund registration under the SEBI (Venture Capital Funds) Regulations, 1996, or a Category I or Category II Alternative Investment Fund registration under the SEBI (Alternative Investment Funds) Regulations, 2012. Never describe the fund as merely "SEBI registered".
Section 115U stands in Chapter XII-F of the Income-tax Act, 1961. Sub-section (1) makes income accruing or arising to or received by a person out of investments made in a venture capital company or venture capital fund chargeable as if he had made the investment directly in the venture capital undertaking. Sub-section (2) requires a statement in the prescribed form to the person liable to tax and to the prescribed authority. Sub-section (3) preserves the nature and proportion of the income in his hands. Sub-section (4) disapplies Chapter XII-D, Chapter XII-E and Chapter XVII-B to income paid under the Chapter. Sub-section (5) deems undistributed income to have been credited on the last day of the previous year. Sub-section (6) shuts the Chapter for a venture capital company or fund that is an investment fund specified in clause (a) of Explanation 1 to section 115UB, for any previous year relevant to an assessment year beginning on or after 1 April 2016. Explanation 1 takes "venture capital company", "venture capital fund" and "venture capital undertaking" from clause (23FB) of section 10; Explanation 2 prevents income already taxed on accrual being taxed again when paid. The matter was decided on 2016-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. Chapter XII-F continues to apply to a venture capital company or venture capital fund as defined in section 10(23FB), with a full pass-through in section 115U(1) and (3), an express bar on Chapter XVII-B withholding in section 115U(4), accrual-basis taxation of the investor in section 115U(5) and protection against double taxation in Explanation 2. But by section 115U(6) nothing in the Chapter applies to income of a previous year relevant to an assessment year beginning on or after 1 April 2016 that accrues or arises to, or is received by, a person from investments made in a venture capital company or fund which is an investment fund specified in clause (a) of Explanation 1 to section 115UB — that is, a Category I or Category II Alternative Investment Fund. Such a fund is on section 115UB instead.
Not applicable — statutory text. In the words reproduced by the source cited on this page: "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."
It was decided by the CBDT Circulars & Instructions on 2016-04-01 and is reported as Section 115U as printed on incometaxindia.gov.in/w/section-115u, Year stamp 2026; the parallel proviso to s.10(23FB) as inserted by s.7(III)(b) of the Finance Act, 2015 (indiankanoon.org/doc/127799810/); Explanation 1 to s.115UB on incometaxindia.gov.in/w/section-115ub, Year stamp 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115U, section 115U(4), section 115U(5), section 115U(6), section 10(23FB), section 115UB, section 10(23FBA), section 10(23FBB), section 194LBB, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. Chapter XII-F continues to apply to a venture capital company or venture capital fund as defined in section 10(23FB), with a full pass-through in section 115U(1) and (3), an express bar on Chapter XVII-B withholding in section 115U(4), accrual-basis taxation of the investor in section 115U(5) and protection against double taxation in Explanation 2. But by section 115U(6) nothing in the Chapter applies to income of a previous year relevant to an assessment year beginning on or after 1 April 2016 that accrues or arises to, or is received by, a person from investments made in a venture capital company or fund which is an investment fund specified in clause (a) of Explanation 1 to section 115UB — that is, a Category I or Category II Alternative Investment Fund. Such a fund is on section 115UB instead. It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and TDS Defaults matters, on section 115U, section 115U(4), section 115U(5), section 115U(6), section 10(23FB), section 115UB, section 10(23FBA), section 10(23FBB), section 194LBB of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If it holds a Category I or Category II AIF registration, treat every previous year from 2015-16 onwards (assessment year 2016-17 onwards) as governed by section 115UB and not by section 115U, and expect no section 10(23FB) exemption either, because the Finance Act, 2015 inserted a matching proviso to that clause. If it holds only the older 1996-Regulations registration, do not assume either answer. Sub-section (6) removes the Chapter only for a fund that IS an investment fund under Explanation 1(a) to section 115UB, and whether a non-migrated 1996-Regulations fund answers that description is a live and undecided question at the Tribunal. If the fund is genuinely inside section 115U, do not deduct tax at source on distributions and do not accept a demand under Chapter XVII-B for failing to: sub-section (4) disapplies that Chapter to income paid under the Chapter. Record the reliance in writing at the time of payment. Watch the accrual rule. Under section 115U(5) the investor is taxed on his proportionate share on the last day of the previous year even if nothing was paid to him; Explanation 2 protects him from being taxed again when it is actually paid, so keep a running reconciliation between accrual-year taxation and later receipts.
Still good law. Section 115U was read on a departmental page that named the Income-tax Act, 1961, printed the section heading "Tax on income in certain cases" and carried a Year stamp of 2026. The page prints no footnote list, so no amending instrument is stated for any sub-section. Whether a fund registered under the SEBI (Venture Capital Funds) Regulations, 1996 that has not migrated to the Alternative Investment Funds Regulations remains within the Chapter is a live question: it was raised squarely before the ITAT Mumbai in Kae Capital Fund v. ITO (ITA No. 3752/Mum/2025, order of 27 November 2025) and was NOT decided, the appeal having been restored to the Commissioner (Appeals) on a natural justice point. No other judicial treatment was searched for. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The whole of section 115U was transcribed from the departmental page /w/section-115u on a fetch required to name the Act, print the section heading and give the Year stamp first; the stamp is Year 2026 and the heading is "Tax on income in certain cases". The page prints no footnote list, so the amending instrument for sub-section (6) could not be sourced from it. The commencement date stated in this entry is taken from two places instead, both read verbatim: sub-section (6) fixes its own reach by reference to "the assessment year beginning on or after the 1st day of April, 2016", and the parallel proviso inserted into section 10(23FB) by section 7(III)(b) of the Finance Act, 2015 — Part (III) of that section being expressed to take effect from the 1st day of April, 2016 — uses the identical formula. That is why the date is stated as 1 April 2016 and not left null; a reader should nonetheless treat it as derived rather than as read off a footnote. The definitions in clause (23FB) of section 10 are NOT reproduced in this entry: they could not be read on any departmental page, because every departmental section 10 page fetched truncated well before that clause, and the version of clause (23FB) quoted in the assessee's grounds of appeal in the Kae Capital Fund order is the assessee's text and not the Tribunal's, so it is not relied on. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. Chapter XII-F continues to apply to a venture capital company or venture capital fund as defined in section 10(23FB), with a full pass-through in section 115U(1) and (3), an express bar on Chapter XVII-B withholding in section 115U(4), accrual-basis taxation of the investor in section 115U(5) and protection against double taxation in Explanation 2. But by section 115U(6) nothing in the Chapter applies to income of a previous year relevant to an assessment year beginning on or after 1 April 2016 that accrues or arises to, or is received by, a person from investments made in a venture capital company or fund which is an investment fund specified in clause (a) of Explanation 1 to section 115UB — that is, a Category I or Category II Alternative Investment Fund. Such a fund is on section 115UB instead.
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