Explanation
Section 115UA governs Business Trusts (REITs and InvITs). Distributions made by a business trust to unitholders retain their original character — interest distributed remains interest income for the unitholder, dividends remain dividends, capital gains remain capital gains. This avoids double taxation. TDS under §194LBA applies on distributions from business trusts. Section 115UB governs investment funds — AIFs registered with SEBI. Category I AIFs (social, infrastructure funds) and Category II AIFs (private equity, debt funds) have pass-through status: income accrues directly in the hands of investors in the same year whether or not distributed, and investors pay tax at their applicable rates. Category III AIFs (hedge funds, derivatives-heavy funds) do not get pass-through — the fund itself is taxed at the maximum marginal rate (approximately 42.74% for individuals including surcharge and cess). TDS under §194LBB applies on income from investment funds at 10% for residents. Losses in a pass-through fund cannot be passed through to investors — only income passes through. Investors must report their share of pass-through income in their ITR. Verify on the income-tax portal before filing.