Income Tax 2025

Appearance

Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer. ​

210(1) ​

The income-tax payable on total income of an assessee, being a specified fund or Foreign Institutional Investor, which includes the income referred to in column B of the Table below, shall be the aggregate of the amounts mentioned in column C thereof. ---table---

210(2) ​

In case of specified fund, provisions of this section shall apply only to the extent of income that is attributable to units held by non-resident (not being a permanent establishment of such non-resident in India) calculated in the manner as prescribed, irrespective of the provisions of sub-section (1).

210(3) ​

Irrespective of anything contained in sub-section (1), where the specified fund––

  • (a) is investment division of an offshore banking unit as specified against serial number 1 of the Table in Schedule III.6; and
  • (b) fulfills the conditions referred to in clause (g)D(ii) of cell E1 of the Table in Schedule VI (Note 1), the provisions of this section shall apply to the extent of income that is attributable to such investment division, calculated in the manner, as prescribed.

210(4) ​

Where the gross total income of the specified fund or Foreign Institutional Investor—

  • (a) consists only of income in respect of securities referred in sub-section (1) (Table: Sl. No. 1), no deduction shall be allowed to it under sections 26 to 61 or section 93(1)(a) or (e) or under Chapter VIII;
  • (b) includes any income referred to in sub-section (1) (Table: Sl. No. 1) to (Table: Sl. No. 5),–– (i) the gross total income shall be reduced by the amount of such income; and (ii) the deduction under Chapter VIII shall be allowed as if the gross total income as so reduced, were the gross total income of the specified fund or Foreign Institutional Investor.

210(5) ​

The provisions of section 72(6) shall not apply for the computation of capital gains arising out of the transfer of securities referred to in sub-section (1) (Table: Sl. No. 2) to (Table: Sl. No. 5).

210(6) ​

In this section,––

  • (a) “Foreign Institutional Investor” means an investor so specified in a notification by the Central Government;
  • (b) “permanent establishment” shall have the meaning assigned to it in section 173(c);
  • (c) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956;
  • (d) “specified fund” shall have the meaning assigned to it in Schedule VI [Note 1]
Explanation

Section Summary: ​

Section 210 of the new income tax law governs the taxation of income earned by Foreign Institutional Investors (FIIs) and specified funds from securities or capital gains arising from their transfer. The section provides a structured framework for calculating the tax payable on such income, including specific rules for deductions and the treatment of income attributable to non-resident unit holders or investment divisions of offshore banking units.

Key Changes: ​

  1. Tax Calculation Framework: The section introduces a table-based approach (referred to in column B and C) to determine the tax payable on specific types of income earned by FIIs and specified funds.
  2. Attribution of Income: For specified funds, the tax provisions apply only to income attributable to units held by non-residents (excluding permanent establishments in India).
  3. Special Provisions for Offshore Banking Units: If a specified fund is an investment division of an offshore banking unit meeting certain conditions, the tax provisions apply only to income attributable to that division.
  4. Restrictions on Deductions: If the gross total income consists solely of income from securities (as per the table), no deductions under sections 26 to 61, 93(1)(a) or (e), or Chapter VIII are allowed.
  5. Exclusion of Section 72(6): Capital gains from the transfer of certain securities (as per the table) are exempt from the provisions of section 72(6), which otherwise governs the carry-forward and set-off of losses.

Practical Implications: ​

  • For FIIs and Specified Funds: The section provides clarity on how income from securities and capital gains will be taxed, ensuring a structured approach to compliance.
  • Non-Resident Unit Holders: Specified funds must calculate income attributable to non-resident unit holders separately, ensuring accurate tax computation.
  • Offshore Banking Units: Funds operating as investment divisions of offshore banking units must ensure compliance with specific conditions to benefit from the tax provisions.
  • Deduction Restrictions: Funds earning income solely from securities cannot claim certain deductions, which may increase their tax liability.
  • Capital Gains Treatment: The exclusion of section 72(6) simplifies the treatment of capital gains, as losses from such transactions cannot be carried forward or set off.

Critical Concepts: ​

  1. Foreign Institutional Investor (FII): Defined as an investor notified by the Central Government, typically including entities like mutual funds, pension funds, and other institutional investors.
  2. Specified Fund: A fund defined in Schedule VI, often including alternative investment funds (AIFs) or other pooled investment vehicles.
  3. Permanent Establishment: A fixed place of business through which a non-resident conducts business in India, as defined in section 173(c).
  4. Securities: As per the Securities Contracts (Regulation) Act, 1956, this includes shares, bonds, debentures, and other financial instruments.

Compliance Steps: ​

  1. Identify Applicable Income: Determine which types of income (as per the table in sub-section 1) are applicable to the FII or specified fund.
  2. Calculate Tax Payable: Use the table-based framework to compute the tax payable on the identified income.
  3. Attribute Income to Non-Residents: For specified funds, calculate income attributable to non-resident unit holders separately.
  4. Verify Offshore Banking Unit Status: If applicable, ensure the specified fund meets the conditions for being an investment division of an offshore banking unit.
  5. Adjust Gross Total Income: If the gross total income includes income from securities, reduce it accordingly and compute deductions under Chapter VIII on the adjusted amount.
  6. Exclude Section 72(6): Ensure capital gains from specified securities are not subject to the carry-forward or set-off provisions of section 72(6).

Examples: ​

  1. Example 1: A specified fund earns ₹10 crore from securities listed in the table under sub-section 1. Of this, ₹6 crore is attributable to non-resident unit holders. The fund must calculate tax only on the ₹6 crore attributable to non-residents, excluding any income attributable to permanent establishments in India.
  2. Example 2: An FII earns ₹5 crore from securities and ₹3 crore from other sources. The gross total income is ₹8 crore. The FII must reduce the gross total income by ₹5 crore (income from securities) and compute deductions under Chapter VIII on the remaining ₹3 crore.
  3. Example 3: A specified fund, which is an investment division of an offshore banking unit, earns ₹7 crore from securities. If it meets the conditions in Schedule VI, the tax provisions apply only to the income attributable to the investment division, calculated as per prescribed rules.