Income-tax (Twelvth Amendment) Rules, 2023


The Ministry of Finance has notified the Income-tax (Twelvth Amendment) Rules, 2023. These Amendment Rules come into force from 17th July, 2023.

These Rules have brought significant amendments to provide exemptions and benefits to non-residents and specified funds. These changes aim to encourage investment activities and boost the growth of the financial sector.

In a notable revision, Rule 21AK has been amended to grant exemption to non-residents on income accrued or received as a result of certain financial transactions. Non-residents will be exempted from income tax on the income arising 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. However, to avail this exemption, non-residents must fulfill certain conditions.

The revised sub-rule (1) of Rule 21AK lays out the following conditions for exemption:

  1. The non-deliverable forward contract or offshore derivative instrument or over-the-counter derivative must be entered into by the non-resident with an offshore banking unit of an International Financial Services Centre (IFSC).
  2. The offshore banking unit of the IFSC must hold a valid certificate of registration granted under the International Financial Services Centres Authority (Banking) Regulations, 2020, by the International Financial Services Centres Authority.
  3. The non-resident must not enter into such contract, instrument, or derivative through or on behalf of its permanent establishment in India.

Another significant change has been made in Rule 114AAB, in the Explanation section, wherein clause (a) has been substituted. As per the revised clause, a “specified fund” is now defined as any fund established or incorporated in India in the form of a trust, company, limited liability partnership, or body corporate. The specified fund must have been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and be regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, or under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

Furthermore, the specified fund should be located in any International Financial Services Centre or fall under sub-clause (i) of clause (c) of Explanation to clause (4D) of section 10.

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