CBDT vide Notification No. 90/2021 in G.S.R. 545(E) dated 9th August 2021 through Income-tax Amendment (22nd Amendment), Rules, 2021 has prescribed the method of calculating the exempt income of specified fund u/s 10(4D) and taxable income u/s 115AD of the Income-tax Act, 1961 (“Act”), attributable to non-residents. For this purpose, two new IT Rules i.e., Rule 21AI and Rule 21AJ are inserted in the Income-tax Rules, 1962 along with Form No. 10IG for furnishing Statement of Exempt income under clause (4D) of section 10 of the Act and Form No. 10IH for furnishing Statement of income of a Specified fund eligible for concessional taxation under section 115AD of the Act.
Rule 21AI provides for manner for computation of exempt income of the specified fund for the purposes of section 10(4D); whereas Rule 21AJ deals with the determination of income of ‘specified fund’ attributable to units held by non-residents under section 115AD(1A). Specified funds mean Category III AIF, located in IFSC, and in which all units other than units held by a sponsor or manager are held by non-residents.
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Exhibit:1
Section 10(4D) of the Act provides an exemption to any income accrued, arisen or received by a Category III Alternative Investment Fund (AIF) located in IFSC subject to satisfaction of certain conditions, as a result of a transfer of a capital asset referred to in section 47(viiab) of the Act on a recognised stock exchange in any IFSC where the consideration is paid or payable in convertible foreign exchange. The exemption is subject to the extent such income accrued or arisen to, or is received in respect of units held by a non-resident. It is also provided that the exemption under this clause shall also be available in case 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.
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.
In this context, the Board has notified Rule 21AI prescribing the manner for computation of exempt income by prescribing a formula to compute the 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. The Principal Director General of Income-tax (Systems) or the Director-General of Income-tax (Systems), as the case may be, shall specify the procedure for filing of the Form No. 10IG.
Section 115AD(1A) specifies that the concessional tax rates provided in section 115AD shall apply 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.
In this context, the Board has also notified Rule 21AJ for the determination of income of a specified fund attributable to units held by non-residents under section 115AD(1A) and prescribed a formula to compute this income.
As per the formula, the income of a specified fund by way of short-term or long-term capital gains referred to in section 115AD(1)(b), which is 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 the digital signature on or before the due date.
Read the full text of Notification No. 90/2021 dated 09.08.2021 on Computation of Exempt Income and Determination of income of Specified Fund u/s 10(4D) and u/s 115AD
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, THE 9th August, 2021
G.S.R. 545(E).—In exercise of the powers conferred by clause (4D) of section 10 and sub-section (1A) 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 Amendment (22nd Amendment), Rules, 2021.
(2) They shall come into force from the date of its publication in the Official Gazette.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), after rule 21AH, the following rules shall be inserted, namely:—
‘21AI. Computation of exempt income of specified fund for the purposes of clause (4D) of section 10.- (1). For the purpose of clause (4D) of section 10, income attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) in a specified fund shall be computed in accordance with the following formula, namely:-
Income exempt under clause (4D) of section 10= A*C1 + B*C2 +D*FI+E*F2, where
A = any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47 , 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 a specified fund as a result of transfer of securities (other than shares in a company resident in India);
C1 = ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the capital asset referred to in clause (viiab) of section 47 to the date of transfer of such capital asset.
C2= ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the security (other than shares in a company resident in India) to the date of transfer of such security.
D = any income accrued or arisen to, or received by a specified fund from securities 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;
E = any income accrued or arisen to, or received by a specified fund from a securitisation trust which is chargeable under the head “profits and gains of business or profession”; and
F1 = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income from securities 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.
F2 = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income from a securitisation trust which is chargeable under the head “profits and gains of business or profession”.
(2) The specified fund shall furnish an annual statement of exempt income in Form No. 10IG electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.
(3) The Principal Director General of Income-tax (Systems) or the Director General of Income tax (Systems), as the case may be, shall specify the procedure for filing of the Form No. 10IG and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the statements so furnished under this rule.
Explanation.- For the purpose of this rule, the expressions,-
(a) “assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date;
(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005)
(c) “permanent establishment” shall have the same meaning as assigned to it in clause (iiia) of section 92F;
(d) “securities” shall have the meaning as assigned to it in clause (bb) of the Explanation to clause (4D) of section 10;
(e) “due date” shall have the same meaning as assigned to it in the Explanation 2 to sub-section (1) of section 139;
(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; and
(g) “unit” shall have the same meaning assigned to it in clause (f) of Explanation to clause (4D) of section 10.
21AJ.Determination of income of a specified fund attributable to units held by non-residents under sub-section (1A) of section 115AD.- (1) For the purposes of sub-section (1A) of section 115AD, the income of a specified fund by way of short-term or long-term capital gains, referred to in clause (b) of sub-section (1) of section 115AD, 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 following formula, namely:—
A = B * C
Where,
A = income attributable to the units held by non-resident (not being the permanent establishment of a non-resident in India)
B = income arising from transfer of the security
C = ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the security to the date of transfer of such security.
(2) For the purposes of sub-section (1A) of section 115AD, the income of a specified fund by way of income received in respect of securities, referred to in clause (a) of sub-section (1) of section 115AD, 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 following formula, namely:—
X = Y * Z
Where,
X = income attributable to the units held by non-resident (not being the permanent establishment of a non-resident in India)
Y = income received in respect of securities
Z = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income.
(3) The specified fund shall furnish an annual statement of income eligible for concessional taxation in Form No 10IH electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.
(4) The Principal Director General of Income-tax (Systems) or the Director General of Income tax (Systems), as the case may be, shall specify the procedure for filing of the Form No. 10IH and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the statements so furnished under this rule.
Explanation.- For the purpose of this rule, the expressions,-
(a) “assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date;
(b) “permanent establishment” shall have the same meaning as assigned to it in clause (iiia) of section 92F;
(c) “securities” shall have the same meaning as assigned to it in clause (bb) of the Explanation to clause (4D) of section 10;
(d) “due date” shall have the same meaning as assigned to it in the Explanation 2 to sub-section (1) of section 139;
(e) “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; and
(f) “unit” shall have the same meaning as assigned to it in clause (f) of Explanation to clause (4D) of section 10.’.
2. In the principal rules, after Form No.10IF, the following Forms shall be inserted, namely :-
“Form No.10IG
[See sub-rule (2) of rule 21AI]
Statement of Exempt income under clause (4D) of section 10 of the Income-tax Act, 1961
Declaration
I, ________________________________ (Name in full and in block letters) son/daughter/wife of_________________________do hereby declare that:
(i) to the best of my knowledge and belief what is stated above and in the Annexure(s), including the documents accompanying such Annexure(s), is correct and complete;
(ii) the fund 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 (15 of 1992;
(iii) the fund is located in an International Financial Services Centre;
(iv) all the units of the Specified Fund are held by non-residents other than units held by a sponsor or a manger.
I further declare that I am furnishing such statement in my capacity as________________________ (designation) and that I am competent to make this declaration and furnish this statement.
Place:
Date:
Yours faithfully,
Signature ……………………………..
Name… … … …………………………
Designation ……… … … … … … ……
Notes:
1. Attach a copy of the certificate of registration under Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
2. “Assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date.
3. “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
4. “International Financial Services Centre Authority” means an Authority established under sub-section (1) of section 4 of the International Financial Services Centres Authority Act, 2019 (50 of 2019).
5. “Permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F.
6. “Securities” shall have the meaning assigned to it in in clause (bb) of the Explanation to clause (4D) of section 10.
7. “Specified fund” shall have the same meaning assigned to it in sub-clause (i) of clause (c) of the Explanation to clause (4D) of section 10.
8. “Unit” shall have the same meaning assigned to it clause (f) of Explanation to clause (4D) of section 10.
9. All amount to be mentioned in Indian rupees.
Annexure 1
+ add rows depending upon number of securities
Annexure 2
+ add rows as required
^Relevant code to be selected
1. Dividend
2. Interest
3. Other Income. Please specify
Form No.10IH
[See sub-rule (3) of rule 21AJ]
Statement of income of a Specified fund eligible for concessional taxation under section 115AD of the Income-tax Act, 1961
Declaration
I,________________________________ (Name in full and in block
letters) son/daughter/wife of________________ do hereby declare that:
(i) to the best of my knowledge and belief what is stated above and in the Annexure(s), including the documents accompanying such Annexure(s), is correct and complete;
(ii) the fund 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 (15 of 1992;
(iii) the fund is located in an International Financial Services Centre;
(iv) all the units of the Specified Fund are held by non-residents other than units held by a sponsor or a manger.
I further declare that I am furnishing such statement in my capacity as_______________________ (designation) and that I am competent to make this declaration and furnish this statement.
Place:
Date:
Yours faithfully,
Signature ……………………………..
Name… … … …………………… ……
Designation… … … … … … … … ……
Notes:
1. Attach a copy of the certificate of registration under Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
2. “Assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date.
3. “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
4. “International Financial Services Centre Authority” means an Authority established under sub-section (1) of section 4 of the International Financial Services Centres Authority Act, 2019 (50 of 2019).
5. “Permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F.
6. “Securities” shall have the meaning assigned to it in in clause (bb) of the Explanation to clause (4D) of section 10.
7. “Specified fund” shall have the same meaning assigned to it in sub-clause (i) of clause (c) of the Explanation to clause (4D) of section 10.
8. “Unit” shall have the same meaning assigned to it clause (f) of Explanation to clause (4D) of section 10.
9. All amount to be mentioned in Indian rupees.
Annexure 1
+ add rows depending upon number of securities
Annexure 2
+ add rows as required
^Relevant code to be selected
1. Dividend
2. Interest
3. Other Income. Please specify.”.
[Notification No. 90/2021/ F. No. 370142/20/202 1-TPL]
NEHA SAHAY, Under Secy. (Tax Policy and Legislation Division)
Note:- The principal rules were published in the Gazette of India Extraordinary, Part III, section 3, sub-section (ii), vide notification number S.O. 969 (E), dated the 26th March, 1962 and last amended vide notification number G.S.R. 514 (E) dated the 29th July, 2021.
Download Copy of CBDT Notification No. 90/2021 dated 09.08.2021 on Computation of Exempt Income and Determination of income of Specified Fund u/s 10(4D) and u/s 115AD in pdf format
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