Section 224 - Tax on income of investment fund and its unit holders
The fund must split business and non-business results and track loss age, unit-holder tenure and allocation. A generic net distribution cannot support accurate investor reporting.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current law and effective date
Section 224 is controlled against the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026; earlier tax years and saved proceedings require the repeal-and-savings framework rather than automatic migration.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
2-minute decode
The fund must split business and non-business results and track loss age, unit-holder tenure and allocation. A generic net distribution cannot support accurate investor reporting.
Who should use this section
Non-residents, foreign companies, funds, trusts, business trusts, investment vehicles and their advisers when receipts or distributions can fall within the special computation or rate architecture of section 224.
How section 224 works in practice
Section 224 sits in Chapter 13 (Determination of Tax in Special Cases) and should be read as a connected rule rather than an isolated label. The practical question is whether the facts actually satisfy the trigger for “Tax on income of investment fund and its unit holders”. For section 224, begin by characterising the person, instrument and receipt before applying a rate. In a section 224 file, residence, treaty entitlement, beneficial ownership, source, permanent-establishment nexus, foreign-currency acquisition, fund/trust status and distribution reporting can move the same cash receipt into different tax buckets. The section 224 computation should therefore be reconciled to withholding and return reporting rather than prepared in isolation. The operating controls are: Classify each head before allocation; Track 12-month unit holding for loss pass-through; File Form 79 and provide Form 78 with income/loss character. A reviewer should record why classify each head before allocation., because that conclusion drives the downstream computation, reporting or procedural consequence.
Old-law bridge
section 115UB
The old-law bridge is a research aid, not an automatic precedent transfer. Match the old provision, the current section, saved proceedings and effective dates before importing an older interpretation.
Current-law control
No separate Finance Act 2026 delta is recorded for section 224 in the current-law register. The page therefore follows the consolidated Act wording and the current Rules mapping, with the official consolidated statute controlling if a later notification or amendment affects the provision.
Professional alert
Classify each head before allocation. Track 12-month unit holding for loss pass-through. File Form 79 and provide Form 78 with income/loss character.
Connected Income-tax Rules, 2026 and Forms
Worked application
A Category II AIF has capital loss and business profit. Business result remains in the fund; qualifying non-business loss may flow to eligible unit holders after the holding-period test.
Evidence / compliance checklist
- Classify each head before allocation.
- Track 12-month unit holding for loss pass-through.
- File Form 79 and provide Form 78 with income/loss character.
- Preserve residence/treaty and beneficial-ownership evidence relevant to section 224.
- Reconcile gross receipts, withholding certificates and return disclosure for section 224.
- Keep instrument, acquisition-currency and distribution records where section 224 depends on them.
Common mistake
Applying the domestic special rate in section 224 without first testing character, source and treaty interaction. For section 224, the 1961 Act bridge helps research, but the current 2025 Act wording and section 159 treaty comparison control the final position.
Recommended approach
For section 224, create a one-page legal-to-evidence matrix. For section 224, put the current statutory condition in the first column, the transaction or procedural fact in the second, the supporting document in the third, and the tax/procedural consequence in the fourth. The first checkpoint should be: Classify each head before allocation. This section 224 matrix makes reviewable differences visible before a return, opinion, notice response or litigation position is finalised.
Thresholds, rates, periods and timing checkpoints
- Section 224 has no standalone numeric checkpoint extracted for this register; use the official consolidated text for any amount, period or rate appearing in a fact-specific sub-clause.
Related provisions and interaction map
Section 224 interacts with residence/source rules, section 159 treaty relief, withholding, return obligations and the legal character of the receipt or distribution. Where section 224 uses a trust/fund statement, the payor and recipient records should reconcile to the same tax bucket.
Direct navigation / cross-checks: section 223, section 225
Validated statutory core - official current source controlled
Text-status note: This page presents a validated operative statutory core rather than pretending a summary is verbatim law. Use the linked official consolidated Act before quoting sub-section language in a filing, opinion or litigation document.
Primary-source trail
Statute: Income-tax Act, 2025 as amended by Finance Act, 2026
Rules: Income-tax Rules, 2026
Law navigation: Income Tax Department 2025 Act / Rules hub
Forms guidance: Official FAQs / Guidance Notes on Income-tax Rules, 2026 forms
Quoting note: The official consolidated Act controls verbatim legislative language.
FAQs
Does an old Income-tax Act, 1961 decision automatically decide section 224?
No. The old-law bridge helps research, but transferability depends on materially matching language, transition rules and any Finance Act 2026 change.
Which source should be quoted in advice or litigation?
Quote the official consolidated statute for the relevant tax year. Where this page presents a validated statutory core rather than complete verbatim text, use the official Act for sub-section wording.
What should be checked immediately before acting?
Re-check the current statutory text, the section-specific Rule/Form mapping and any notification or court order relevant to the exact facts. Section 224 should not be applied from a historic section number or a generic tax summary alone.