CBDT notifies rules for computation of income of specified funds u/s 10(4D) & 115AD(1B)

Notification No. 6/2022, dated 14-01-2022

The Finance Act, 2021 has amended section 10(4D) to provide an exemption in respect of any income accrued or arisen to or received to the investment division of offshore banking unit to the extent attributable to it and computed in the prescribed manner.
Further, a sub-section (1B) to section 115AD has been inserted to provide that the benefit of concessional tax rate under Section 115AD shall apply to the investment division of an offshore banking unit. The benefit shall be available to the extent of income attributable to the investment division of such banking units, referred to in section 10(4D) and calculated in the prescribed manner.

The Central Board of Direct Taxes (CBDT) has prescribed the computation mechanism prescribed under both sections. The Board has notified Rule 21AJA and Rule 21AJAA prescribing manner for computation of income attributable to the investment division of an offshore banking unit.

1. Rule 21AJA

It prescribes the following formula for the computation of income of specified fund attributable to the investment division of an offshore banking unit under section 10(4D):

A+B+C+D

Where,

A = any income accrued or arisen to, or received by the eligible investment division as a result of transfer of a capital asset referred to in section 47(viiab) held by it and the consideration for such transaction is paid or payable in convertible foreign exchange;
B= any income accrued or arisen to, or received by the eligible investment division as a result of transfer of securities held by it (other than shares in a company resident in India);
C= any income accrued or arisen to, or received by the eligible investment division from securities held by it and issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India;
D =any income accrued or arisen to or received by the eligible investment division from a securitisation trust which is chargeable under the head “profits and gains of business or profession.

2. Rule 21AJAA

It prescribes the following formula for the determination of income of a specified fund attributable to the investment division of an offshore banking unit under section 115AD(1B):

A+B+C+D+E+F

Where,

A = income by way of long term capital gain referred to in section 115AD(1)(b), accrued or arisen to, or received by the eligible investment division, as a result of transfer of a security referred to in section 112A and held by such investment division;
B = income by way of long term capital gain referred to in section 115AD(1)(b), accrued or arisen to, or received by the eligible investment division as a result of transfer of a security, other than that referred to in section 112A, and held by such investment division;
C=income by way of short term capital gain referred to in section 115AD(1)(b), accrued or arisen to, or received by the eligible investment division as a result of transfer of security referred to in section 111A and held by such investment division;
D=income by way of short term capital gain referred to in section 115AD(1)(b), accrued or arisen to, or received by the eligible investment division as a result of transfer of a security, other than that referred to in section 111A and held by such investment division
E= income from securities referred to in section 115AD(1)(a), being in the nature of interest referred to in section 194LD, held by the eligible investment division
F= income from securities, held by the eligible investment division, as referred to in section 115AD(1)(a) and not included in item E above.

3. Compliances

(a) An investment division of an offshore banking unit shall maintain separate accounts for the registered investment division reflecting the true and fair accounts of all transactions relating to the investment division.
(b) The investment division shall get its accounts audited and furnish the audit report in Form no. 10-IL.
(c) Eligible investment division shall furnish an annual statement of exempt income and an annual income statement, eligible for taxation under section 115AD(1B) in Form No. 10-IK.