The Central Board of Direct Taxes (CBDT) has issued Income Tax Notification 50/2023, dated July 17, 2023, to make amendments to the Income-tax Rules, 1962, vide Income-tax (Twelvth Amendment) Rules, 2023. These amendments primarily focus on providing exemptions and regulations concerning certain income and financial instruments for non-residents. The notification specifies the following changes:
1. Amendment to Rule 21AK:
Sub-rule (1) of Rule 21AK is substituted with a new sub-rule, which states that income accrued, arisen or received by a non-resident from the transfer of non-deliverable forward contracts, offshore derivative instruments or over-the-counter derivatives, under clause (4E) of Section 10 of the Income-tax Act, will be exempted from taxation. However, this exemption is subject to fulfilling the following conditions:
i) The non-resident should enter into the contract or instrument with an offshore banking unit of an International Financial Services Centre (IFSC).
ii) The IFSC should hold a valid certificate of registration granted by the International Financial Services Centres Authority (IFSCA) under the International Financial Services Centres Authority (Banking) Regulations, 2020.
iii) The contract, instrument or derivative should not be entered into by the non-resident through or on behalf of its permanent establishment in India.
2. Amendment to Rule 114AAB:
In the Explanation to Rule 114AAB, clause (a) is substituted with a new clause, which defines the term “specified fund” as any fund established or incorporated in India in the form of a trust, company, limited liability partnership or body corporate.
This fund should have been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and should be regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, or the International Financial Services Centres Authority (Fund Management) Regulations, 2022.
The fund should be located in any International Financial Services Centre or should be a specified fund referred to in sub-clause (i) of clause (c) of the Explanation to clause (4D) of Section 10.
3. Substitution of Form 10CCF
The notification replaces Form 10CCF (Report under section 80LA(3) of the Income-tax Act, 1961) in Appendix II of the Income-tax Rules with an updated form with clarification on the criteria for claiming deductions under section 80LA.
Conclusion
These amendments aim to provide clarity and exemptions related to non-resident income from certain financial instruments and to streamline the taxation process for non-residents in India. The amendments in I-T rules have been made to accommodate proposals related to International Financial Services Centers (IFSC) in the Finance Act of 2023, with focus on regulations concerning non-resident income, offshore banking units, alternative investment funds and reporting requirements, like provisions for exempting income generated from non-deliverable forward contracts, offshore derivative instruments, etc. subject to certain conditions.
CBDT Income Tax Notification 50/2023 dated 17/07/2023: I-T Rules Amended for Certain Exemptions to Non-residents’ Investments