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CBDT Notification: NRI Investment in Financial Products via IFSC Intermediary Qualifies for Sec. 10(4G) Exemption

The recent notification, S.O. 66(E), issued by the Central Government under sub-clause (ii) of clause (4G) of section 10 of the Income-tax Act, 1961, marks a significant development in facilitating non-resident Indian (NRI) investments in financial products. This notification highlights the activity of investment in a financial product by an NRI, in accordance with a contract with a capital market intermediary, which is a Unit of an International Financial Services Centre (IFSC).

Key Provisions of the Notification:

NRI Investment: The notification allows NRIs to invest in financial products through contracts with capital market intermediaries operating within IFSCs.
Income Receipt: The income generated from such investments must be received in the account of the non-resident maintained with the Offshore Banking Unit of the IFSC.

Explanation:

Capital Market Intermediary: The term “capital market intermediary” refers to entities defined under clause (ga) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021.
Financial Product: This pertains to products defined under sub-clause (d) of sub-section (1) of section 3 of the International Financial Services Centres Authority Act, 2019.
International Financial Services Centre: The term carries the same definition as assigned in clause (q) of section 2 of the Special Economic Zones Act, 2005.
Unit: It is defined under clause (zc) of section 2 of the Special Economic Zones Act, 2005.

Implications:

Enhanced Investment Opportunities: NRIs now have expanded avenues to invest in financial products, leveraging the services provided by IFSC intermediaries.
Boost to IFSCs: The notification is expected to boost the growth and development of IFSCs, positioning them as preferred destinations for international financial transactions.

Conclusion:

S.O. 66(E) represents a progressive step towards fostering NRI investment in India’s financial markets. By providing clarity and enabling mechanisms for investment, the notification underscores the government’s commitment to facilitating a conducive environment for foreign investments. It also underscores the significance of IFSCs in driving India’s position as a global financial hub.

As NRIs explore investment opportunities through IFSC intermediaries, it becomes imperative for them to understand the regulatory framework and implications associated with such investments. This notification opens new avenues for NRIs to participate in India’s economic growth story while adhering to regulatory norms and contributing to the development of the financial ecosystem.

In essence, S.O. 66(E) paves the way for a more inclusive and dynamic investment landscape, benefiting both NRIs and the Indian economy as a whole.

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CBDT notifies Income Tax Return Forms for the Assessment Year 2024-25 well in advance for the Assessment Year (A.Y.) 2024-25

The Central Board of Direct Taxes (CBDT) vide Notification No. 19 of 2024 dated 31.01.2024, has notified Income-tax Return Forms (ITR Form) – 2, 3 and 5 for the Assessment Year (A.Y.) 2024-25. Further, vide Notification No. 16 of 2024 dated 24.01.2024, ITR Form-6 has been notified for the A.Y. 2024-25. Earlier, ITR-1 and ITR-4 for the A.Y. 2024-25 were notified vide Notification No. 105 of 2023 dated 22.12.2023. All ITR Forms 1 to 6 have since been notified and will come into effect from 1^st April, 2024.

ITR-1 (SAHAJ) can be filed by resident Individuals having total income upto Rs. 50 lakh and having income from Salaries, one house property and income from other sources. Individuals and HUFs not having income from business or profession [and not eligible for filing ITR Form-1 (Sahaj)] can file ITR-2, while those having income from business or profession can file ITR Form- 3. ITR-4 (SUGAM) is for resident individuals, HUFs and Firms (other than LLP) having total income upto Rs. 50 lakh and having income from business and profession computed under section 44AD, 44ADA or 44AE. Persons other than individual, HUF and companies i.e. partnership firm, LLP etc. can file ITR Form- 5. The companies other than those claiming exemption under section 11 can file ITR Form-6.

Changes have been incorporated in the ITRs in order to facilitate the taxpayers and to improve ease of filing. Largely, the changes incorporated were necessitated due to amendments in the Income-tax Act, 1961 made vide Finance Act, 2023. The Notifications of the ITR Forms are available on the Department’s website at the following link: www.incometaxindia.gov.in.

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February, 3
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Circular and Notifications, Income Tax, Income Tax Circular Notification
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Timeline to update UDINs till June 30, 2022 extended by CBDT

The Central Board of Direct Taxes (CBDT) has extended the timeline to update Unique Document Identification Numbers (UDIN) till 30th June 2022 to give more time to CAs to correctly verify and upload UDINs.

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June, 1
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Income Tax
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CBDT notifies new Rule 21AJA, Rule 21AJAA and Form No. 10-IK

MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 14th January, 2022

G.S.R. 15(E).—In exercise of the powers conferred by clause (4D) of section 10 and sub-section (1B) of section 115AD, read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct taxes hereby makes the following rules further to amend the Income-tax Rules,1962, namely:─

1. Short title and commencement.- (1) These rules may be called the Income tax (1st Amendment) , Rules, 2022.

(2) They shall come into force from the 1st day of April, 2022. 2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), after rule 21AJ, the following rules shall be inserted, namely:—

„21AJA. Computation of exempt income of specified fund, attributable to the investment division of an offshore banking unit, for the purposes of clause (4D) of section 10 of the Act- (1) For the purposes of clause (4D) of section 10 of the Act, income of specified fund attributable to the investment division of an offshore banking unit shall be computed in accordance with the following formula, namely:-

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 clause (viiab) of section 47 of the Act held by it, on a recognised stock exchange located in any International Financial Services Centre and where 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”.

Explanation: Any expenditure incurred for the purposes of making or earning income referred to in items A or B or C or D shall not be allowed as deduction from income from any other activity or source under any provision of the Act, irrespective of the fact that such expenditure has not been allowed as deduction against income referred to in items A or B or C or D, as the case may be.

(2) The eligible investment division shall furnish an annual statement of exempt income in Form No. 10-IK electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.

(3) For the purposes of item (II) of sub-clause (ii) of clause (c) of the Explanation to clause (4D) of section 10 of the Act, an investment division of an offshore banking unit shall fulfill the following conditions, namely:-

(a) it shall maintain separate accounts for the registered investment division reflecting the true and fair accounts of all transactions relating to the investment division and which shall ensure that direct and indirect expenses relating to the incomes referred to in sub-rule (1) and other incomes are properly recorded, accounted for, and apportioned to these activities;

(b) it shall get the accounts, referred to in clause (a), audited by an accountant before the specified date and such accountant shall furnish by that date the report of such audit in Form No. 10-IL electronically under digital signature, which is duly verified in the manner indicated therein;

(c) it shall maintain proper documentation in respect of,- (i) inbound remittance for buying and selling the investments; and (ii) the use of inward remittance made to India;

(d) it shall maintain bank statement of all accounts of the registered investment division,;

(e) it shall maintain contract notes relating to purchase and sale of securities by the registered investment division; and

(f) it shall maintain a statement of securities issued by the custodian. (4) The Principal Director-General of Income-tax (Systems) or Director-General of Income-tax (Systems), as the case may be, shall,-

(i) specify the procedures, formats and standards for ensuring secure capture and transmission of data; and

(ii) be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to Form No 10-IK and Form No 10-IL. Explanation. – For the purpose of this rule, the expressions,-

(a) “accountant” shall have the same meaning as assigned to it in the Explanation below subsection (2) of section 288 of the Act;

(b) “due date” shall have the same meaning as assigned to it in the Explanation 2 to sub-section (1) of section 139 of the Act;

(c) “eligible investment division” shall mean a registered investment division which fulfills the conditions as prescribed under item II of sub-clause (ii) of clause (c) of the Explanation to clause (4D) of section 10 of the Act;

(d) “investment division of an offshore banking unit” shall have the same meaning as assigned to it in clause (aa) of the Explanation to clause (4D) of section 10 of the Act;

(e) “registered investment division” shall mean an investment division of an offshore banking unit which fulfills the condition specified under item (I) of sub-clause (ii) of clause (c) of the Explanation to clause (4D) of section 10 of the Act;

(f) “securities” shall have the same meaning as assigned to it in clause (bb) of the Explanation to clause (4D) of section 10 of the Act;

(g) “specified date”, in relation to the accounts of the registered investment division of the previous year relevant to an assessment year, means a date one month prior to the due date.

(h) “specified fund” shall have the same meaning as assigned to it in clause (c) of the Explanation to clause (4D) of section 10 of the Act.

21AJAA. Determination of income of a specified fund attributable to the investment division of an offshore banking unit under sub-section (1B) of section 115AD of the Act – (1) For the purposes of subsection (1B) of section 115AD of the Act, income of a specified fund, being the investment division of an offshore banking unit shall be computed in accordance with the following formula, namely:-

A+B+C+D+E+F

where,− A = income by way of long term capital gain referred to in clause (b) of sub-section (1) of section 115AD, accrued or arisen to, or received by the eligible investment division , as a result of transfer of a security referred to in section 112A of the Act and held by such investment division;

B = income by way of long term capital gain referred to in clause (b) of sub-section (1) of section 115AD, 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 of the Act, and held by such investment division;

C= income by way of short term capital gain referred to in clause (b) of sub-section (1) of section 115AD, accrued or arisen to, or received by the eligible investment division as a result of transfer of security referred to in section 111A of the Act and held by such investment division;

D= income by way of short term capital gain referred to in clause (b) of sub-section (1) of section 115AD, 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 of the Act, and held by such investment division;

E= income from securities referred to in clause (a) of sub-section (1) of section 115AD of the Act, being in the nature of interest referred to in section 194LD of the Act, held by the eligible investment division;

F= income from securities, held by the eligible investment division, as referred to in clause (a) of subsection (1) of section 115AD of the Act and not included in item E above.

Explanation: Any expenditure incurred for the purposes of making or earning an income referred to in items A or B or C or D or E or F shall not be allowed as a deduction from income from any other activity or source, irrespective of the fact that such expenditure has been not allowed as a deduction against income referred to in items A or B or C or D or E or F, as the case may be.

(2) The eligible investment division shall furnish an annual statement of income, eligible for taxation under sub-section (1B) of section 115AD of the Act, in Form No. 10-IK electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.

Explanation.- For the purpose of this rule, the expressions,-

(a) “due date” shall have the same meaning as assigned to it in the Explanation 2 to sub-section (1) of section 139 of the Act;

(b) “eligible investment division” shall mean a registered investment division which fulfills the conditions as prescribed under item II of sub-clause (ii) of clause (c) of the Explanation to clause (4D) of section 10 of the Act;

(c) “investment division of an offshore banking unit” shall have the same meaning as assigned to it in clause (aa) of the Explanation to clause (4D) of section 10 of the Act;

(d) “registered investment division” shall mean an investment division of an offshore banking unit which fulfills the condition specified under item (I) of sub-clause (ii) of clause (c) of the Explanation to clause (4D) of section 10 of the Act;

(e) “securities” shall have the same meaning as assigned to it in clause (c) of the Explanation to section 115AD of the Act;

(f) “specified fund” shall have the same meaning as assigned to it in sub-clause (i) of clause (c) of the Explanation to clause (4D) of section 10 of the Act.‟.

notification-06-2022

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