CBDT notifies rules to compute exemption & income taxable at concessional rates in hands of specified fund

Notification No. 90/2021, dated 09-08-2021

Section 10(4D) provides an exemption in respect of the following income accrued or arisen to or received by a specified fund:

(a) Income from transfer of a capital asset as referred to in Section 47(viiab);

(b) Income arising from transfer of securities (other than shares in a company resident in India);

(c) Income from securities issued by a non-resident (not being a PE of a non-resident in India) and where such income otherwise does not accrue or arise in India; or

(d) Income from a securitization trust which is chargeable under the head ‘Profits and gains from business or profession’.

Exemption under this provision shall be limited to the income attributable to units held by a non-resident, not being the permanent establishment of a non-resident in India. It is provided in the section that the CBDT shall notify the rules to compute the income attributable to units held by non-residents.

Now, the board has notified Rule 21AI prescribing manner for computation of exempt income. The board has prescribed a formula to compute income attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) in a specified fund. The specified fund is also required to furnish an annual statement of exempt income in Form No. 10IG electronically under digital signature.

Further, in case of specified funds, section 115AD(1A) provides that concessional tax provided by sub-section 1 to section 115AD shall only to the extent of income that is attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) calculated in the prescribed manner.

The board has also notified Rule 21AJ determining income of a specified fund attributable to units held by non-residents. The income of a specified fund by way of short-term or long-term capital gains, referred to in section 115AD(1)(b), attributable to the units held by non-resident (not being the permanent establishment of a non-resident in India) shall be calculated in accordance with the specified formula.

The specified fund is also required to furnish an annual statement of income eligible for concessional taxation in Form No. 10IH electronically under digital signature.
Specified fund means:

1. a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,

a) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 or International Financial Services Centre Authority Act, 2019;

b) which is located in any International Financial Services Centre; and

c) of which all the units other than unit held by a sponsor or manager are held by non-residents; or

2. Investment division of an offshore banking unit, which has been:

a) granted a certificate of registration as a Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 and which has commenced its operations on or before 31-03-2024; and

b) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed.

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