SCHEDULES III TO VII — SPECIALISED EXEMPT INCOMES

SCHEDULE III — Income Not to be Included in Total Income of Eligible Persons

Schedule III: General — Eligible Investment Funds / VCFs / Cat I-II AIFs / Sovereign Wealth (Pre-IFSC)

SCHEDULE TEXT

[See section 11]

Income not to be included in total income of eligible persons. Schedule III contains a Table listing categories of eligible persons (column B), the specific income exempted (column C), and the conditions to be fulfilled (column D).

Major categories covered: (i) Specified Indian venture capital fund / Indian venture capital company; (ii) Category I AIF / Category II AIF (with pass-through to investors); (iii) Securitisation trust; (iv) Sovereign wealth fund / specified pension fund (pre-FA 2024 architecture); (v) National Skill Development Corporation; (vi) Air India Assets Holding Limited / similar Government-restructured entities; (vii) Specified Foreign Portfolio Investor income from specified investments; (viii) Specified mutual fund unit-holders for transition exemptions.

OLD ACT (1961) CORRESPONDENCE

Section 10(23C)(specified categories), 10(23F-FB)(VCC/VCF), 10(23FBA-FBC)(AIF Cat I-II pass-through), 10(23DA)(securitisation trust), 10(23FE)(sovereign wealth fund / pension fund), 10(23BBA-BBH)(specified statutory bodies).

COMMENTARY

Schedule III consolidates the specialised investor / fund-vehicle exempt incomes. The substantive content of each entry is preserved verbatim from the corresponding old s. 10 sub-clause. Practical relevance: AIF Category I / II investors must continue to use Form 64C for pass-through reporting; sovereign wealth funds / pension funds investing in Indian infrastructure (post-FA 2020 s. 10(23FE)) continue to enjoy the exemption subject to 3-year holding and approved investment vehicle conditions.

Sovereign wealth fund regime (post-FA 2024). The 31 March 2025 sunset on fresh investments (per FA 2024 amendment) is preserved in Schedule III; subsequent extension expected. Existing investments grandfathered.

Practitioner takeaway. (i) For AIF clients: Cat I/II is pass-through under Schedule III; Cat III is taxed at fund level (under section 224, formerly s. 115UB). (ii) For sovereign / pension fund clients investing in Indian infrastructure: file Form 10BBA / 10BBB equivalents annually; track 3-year holding compliance. (iii) For VCC/VCF: SEBI registration mandatory; coordinate with Schedule III entry for exemption claim.

SCHEDULE IV — Income Not to be Included in Total Income of Eligible Non-Residents, Foreign Companies and Other Such Persons

Schedule IV — NR / Foreign Company / Specified NR-Categories

SCHEDULE TEXT

[See section 11]

Schedule IV contains the Table for income exempt to: (i) Foreign Government / foreign sovereign instrumentality; (ii) Foreign company on specified items (e.g., royalty / FTS arrangement under approved deal — old s. 10(48)); (iii) Specified foreign company providing technical services to Indian Government / similar; (iv) Foreign mining and petroleum exploration company on specified income (old s. 10(48A)/(48B)/(48D)); (v) Foreign airline / shipping NR with reciprocity; (vi) Notified foreign portfolio investor income from specified bonds; (vii) NRI / specified NR investor categories.

OLD ACT (1961) CORRESPONDENCE

Section 10(6) (allowance to UN / foreign Govt employees), 10(6B) (foreign company royalty under specified arrangement), 10(48) / (48A) / (48B) / (48C) / (48D) / (48E) (foreign company specified items — petroleum / coal / specified deals).

COMMENTARY

Schedule IV is critical for non-resident assessees. Examples: (a) Foreign airline employees' allowances (old s. 10(6)) — exempt subject to reciprocity; (b) Foreign mining / petroleum company's exploration income outside India for India-based contract (old s. 10(48)) — exempt subject to deal approval by CBDT; (c) Foreign company's interest on specified bonds (old s. 10(15)(viii)) — exempt; (d) Foreign sovereign / Central Bank investment income (old s. 10(23BB)) — exempt.

Practitioner takeaway. (i) For foreign company / foreign Government clients with India-source receipts: verify the specific Schedule IV entry; document deal approval / notification; coordinate with section 9 source-rule analysis. (ii) For NR airline / shipping clients: section 60-61 of the new Act (formerly s. 44B / 44BBA) provides presumptive income; Schedule IV may also be invoked for specific exempt categories.

Continuity of jurisprudence. CIT v. ONGC (2003) 132 Taxman 156 — seismic services to ONGC under approved deal under old s. 10(48); Schedule IV preserves the operative architecture.

SCHEDULE V — Income Not to be Included in Total Income of Investment Funds and Business Trusts (REIT / InvIT)

Schedule V — REIT / InvIT / Business Trust / Investment Fund Pass-Through

SCHEDULE TEXT

[See section 11]

Schedule V tabulates the exempt income of: (i) Real Estate Investment Trust (REIT) — rental income from real estate assets at SPV level (old s. 10(23FCA)); (ii) Infrastructure Investment Trust (InvIT) — interest income from infrastructure SPV (old s. 10(23FC)); (iii) Business Trust unit-holder — distributed income exempt at unit-holder level if rental nature (old s. 10(23FD)); (iv) Investment Fund (Cat I/II AIF) — income from investments (old s. 10(23FBA-FBC)); (v) Specified investment vehicle (alternative pass-through).

The unique feature: Schedule V is paired with section 231 (formerly s. 115UA) — the pass-through mechanism. Pre-distribution income is exempt at the trust level under Schedule V; post-distribution, it is taxable in the unit-holder's hands character-by-character (interest, dividend, rent, capital gain) under sections 231-236 / Form 64A / 64B.

OLD ACT (1961) CORRESPONDENCE

Sections 10(23FB), 10(23FBA), 10(23FBB), 10(23FBC), 10(23FC), 10(23FCA), 10(23FD), 10(23FE), 10(23FF) — specialised pass-through regime for REIT / InvIT / business trust / AIF / IFSC fund.

COMMENTARY

Schedule V implements the most significant innovation in collective-investment taxation in India — the post-2014 pass-through regime for REIT / InvIT / business trust. Prior to this regime, the Indian-style trust was inefficiently taxed (trustee-level under s. 161 read with marginal rate); REITs / InvITs would have been commercially unviable. The pass-through regime — exempt at trust level + character-preserved at unit-holder level — made REITs / InvITs viable and led to a wave of listed REIT / InvIT IPOs from 2019 onwards.

FA 2023 amendment: the 'rate of taxation' on distributions has been clarified — interest / rental / dividend retain their character; capital gains on units of business trust are taxed at the 20% (now 12.5% post-FA 2024) LTCG rate. Schedule V preserves these distinctions.

Practitioner takeaway. (i) For REIT / InvIT investors: Form 64A / 64B from the trust gives the character break-down. Apply the appropriate head treatment in own return. (ii) For AIF Cat I/II investors: Form 64C from the AIF; pass-through under Schedule V. (iii) For Cat III AIF: not pass-through; taxed at fund level under section 224 / formerly s. 115UB. (iv) Continuity of jurisprudence: CIT v. R.M. Chidambaram Pillai (1977) 106 ITR 292 (SC) — character of receipts preserved through trust structure — applies.

SCHEDULE VI — Income Not to be Included in Total Income of Certain Eligible Persons in International Financial Services Centres (IFSC)

Schedule VI — IFSC GIFT City Specialised Exemptions

SCHEDULE TEXT

[See section 11]

Schedule VI is the dedicated exemption vehicle for IFSC GIFT City entities. Categories include: (i) IFSC banking unit (IBU) — interest income on certain IFSC products; (ii) IFSC capital market intermediary — income from prescribed activities; (iii) IFSC fund manager — fee income (with the post-FA 2020/FA 2024 GIFT-specific safe harbour from business connection under Schedule I read with this Schedule); (iv) IFSC insurance / reinsurance — premium income on offshore policies; (v) IFSC aircraft leasing / ship leasing — lease income from non-resident lessees; (vi) IFSC fintech / specified IFSC entity — notified income.

Schedule VI is paired with the IFSC Act, 2019 and the IFSCA Regulations, 2020 onwards. The Indian Government has incentivised GIFT City through this Schedule to attract offshore financial services activity.

OLD ACT (1961) CORRESPONDENCE

Section 10(4D) (IFSC fund), 10(4F) (IFSC aircraft leasing), 10(4G) (IFSC fund unitholder), 10(4H) (IFSC ship leasing), 10(4I) (IFSC bullion exchange), 10(15)(ix) (IFSC bond interest), 10(15A) (foreign company interest in IFSC), 10(23FE) read with IFSC connections, 10(23FF) (IFSC shipping / aircraft leasing).

COMMENTARY

Schedule VI is the most actively-evolving Schedule in the new Act. Every Finance Act since FA 2019 has added new IFSC carve-outs. The 2024 / 2025 amendments expanded the exempt-income categories to include: aircraft leasing (FA 2021), ship leasing (FA 2022), bullion exchange (FA 2022), fintech innovation regulatory sandbox (FA 2023), and certain dividend / capital gains carve-outs.

GIFT City strategy. India's strategic objective is to bring back offshore financial activity (Mauritius / Singapore / Dubai) onshore via tax neutrality at GIFT City. Schedule VI is the cornerstone — it provides up to 100% exemption for first 10 years (with subsequent partial exemptions) on prescribed offshore-like activity carried out by registered IFSC entities. Combined with the GST / customs / SEZ incentives, GIFT City offers competitive offshore-like environment.

Practitioner takeaway. (i) For clients considering GIFT City registration: review Schedule VI entries against the proposed activity; verify IFSCA registration; document the offshore client base / non-resident counterparty. (ii) For IFSC fund managers: combine Schedule I (Paragraph 1(6) carve-out) with Schedule VI (manager-fee exemption) for full tax-neutral treatment. (iii) For aircraft / ship leasing: post-FA 2021/FA 2022 regime is highly favourable — 100% exemption for 10 consecutive years out of 15 under Schedule VI. (iv) Track CBDT / IFSCA notifications under Schedule VI annually.

SCHEDULE VII — Persons Exempt from Tax

Schedule VII — Entirely Exempt Persons (President / UN / Sovereign States / Notified Bodies)

SCHEDULE TEXT

[See section 11]

Schedule VII enumerates persons whose total income is wholly outside the income-tax charge. The Schedule contains a Table with: Sl. No. / Eligible person (column B) / Conditions (column C). Major categories:

(i) The President of India (as per office); (ii) Foreign sovereign States and Central Banks (under sovereign immunity principles); (iii) United Nations and its specialised agencies under the United Nations Privileges and Immunities Act, 1947; (iv) International organisations notified under the Privileges of International Organisations Act, 1947; (v) National Disaster Management Authority (specified categories); (vi) Specified statutory authorities — IRDA, SEBI, RBI, NABARD, NHB, EPFO Trust, ICAI / ICSI / ICWA — for specified income; (vii) Khadi and Village Industries Commission; (viii) Specified scheduled tribe assessees in north-eastern states (under old s. 10(26)); (ix) Educational and medical institutions under sub-clauses (iiiad/iiiae/iv/v/vi/via) of old s. 10(23C) — university / hospital with annual receipts cap or notified status; (x) Specified other notified bodies.

OLD ACT (1961) CORRESPONDENCE

Section 10(20)(local authority), 10(23BB)(certain sovereign / Central Bank), 10(23BBA)(statutory body), 10(23BBE)(IRDA), 10(23BBG)(CERC), 10(23BBH)(Prasar Bharati), 10(23C)(educational / medical institution — sub-iiiab/iiiac/iiiad/iiiae/iv/v/vi/via), 10(26)(scheduled tribe), 10(26B)/(26BB)(state development authority), 10(46) (specified body / fund / authority).

COMMENTARY

Schedule VII is conceptually distinct from Schedule II (general exempt incomes) — Schedule II exempts particular incomes of any assessee, while Schedule VII exempts the entire income of particular persons. The two work in parallel: a person in Schedule VII does not need to invoke Schedule II for individual income items because the entire total income is outside the charge.

Notification regime. Most Schedule VII categories require notification by the CBDT under specific authority. For example, educational / medical institutions under old s. 10(23C)(iv)/(v) require notification with annual approval / renewal; scheduled-tribe exemption under old s. 10(26) is by location and tribal status; statutory body exemption under old s. 10(46) is by Central Government notification. The notification regime preserved under Schedule VII; existing notifications under old provisions continue under section 536 (savings) until rescinded.

Section 10(23C) regime. Substantial changes by FA 2020 (audit + registration mandatory) and FA 2023 (further compliance) — all preserved. Educational / medical institutions with annual receipts above Rs 5 crore must be notified; below Rs 5 crore (sub-iiiad/iiiae) — automatic exemption subject to predominant educational / medical purpose. The strict-construction rule applies: any deviation from the conditions forfeits exemption.

Practitioner takeaway. (i) For foreign Mission / UN / international organisation clients: Schedule VII automatic; no Indian return required for organisation. (ii) For statutory bodies / regulators: verify Schedule VII entry; coordinate with audit. (iii) For educational / medical institutions: Form 10BB audit (post-FA 2023) mandatory; annual filing within statutory timeline. (iv) For scheduled-tribe assessees in NE states: territorial test critical — relocation may forfeit exemption. (v) For approval-based bodies under old s. 10(46): track CBDT notification renewals.

Schedules III to VII — Consolidated At-a-Glance

Practitioner notes

• Schedule III: AIF Cat I/II — Form 64C for unit-holders; Cat III — fund-level taxation under s. 224.
• Schedule IV: foreign company / NR — coordinate with s. 9 source rule and s. 158 DTAA; deal approval / notification critical.
• Schedule V: REIT / InvIT — Form 64A from trust; character preservation in unit-holder return; FA 2023 / FA 2024 distribution taxation rules.
• Schedule VI: GIFT City — track each Finance Act for new IFSC carve-outs; aircraft / ship leasing post-FA 2021/2022 highly favourable.
• Schedule VII: notification regime — annual renewal / statutory audit Form 10BB for educational/medical; scheduled-tribe territorial test.

— End of Schedules Volume 2 —