TaxTMI 
TaxTMI 
TaxTMI 
Definitions
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....tution, if the class of interests was established with a purpose of avoiding reporting in accordance with rule 114G and, in case of a U.S. reportable account, if the value of debt or equity interest is determined, directly indirectly, primarily by reference to assets that give rise U.S. source with holdable payments; and (v) any cash value insurance contract and any annuity contract issued or maintained by a financial institution, other than a non-investment-linked, non-transferable immediate life annuity that is issued to an individual and monetises a pension or disability benefit provided under an account that is an excluded account. Explanation.- For the purposes of this clause,- (a) "depository account" includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a financial institution in the ordinary course of a banking or similar business and also an amount held by an insurance company pursuant to a guaranteed investment contract or similar agreement to pay or c....
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....es of this clause, a single premium life insurance contract which does not permit an amount to be paid on surrender or termination of the contract and which does not allow amounts to be borrowed under or with regard to the contract, shall not constitute a cash value insurance contract; (g) "cash value" means the greater of- (i) the amount that the policyholder is entitled to receive upon surrender or termination of the contract (determined without reduction for any surrender charge or policy loan); and (ii) the amount the policyholder can borrow under or with regard to the contract, but does not include an amount payable under an insurance contract,- (A) solely by reason of the death of an individual insured under a life insurance contract including a refund of a previously paid premium provided such refund is a limited risk refund; or (B) as a personal injury or sickness benefit or other benefit providing indemnification of an economic loss incurred upon the occurrence of the event insured against; or (C) as a refund of a previously paid premium (less cost of insurance charges whether or not actually imposed) under an ....
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.... will not fail to satisfy such requirements solely because such financial account may receive assets or funds transferred from one or more financial accounts that meet the requirements of ^5[sub-clauses (i) or (ii) or from one or more retirement or pension funds that meets with the requirements of clauses (E), (F) or (G) of Explanation to clause (5)]; (ii) an account that satisfies the following requirements, namely:- (A) the account is subject to regulation as a savings vehicle for purposes other than for retirement, or the account (other than U.S. reportable account) is subject to regulation as an investment vehicle for purposes other than for retirement and is regularly traded on an established securities market; (B) the account is tax-favoured where contributions to the account that will otherwise be subject to tax are deductible or excluded from the total income of the account holder or taxed at a reduced rate, or taxation of investment income from the account is deferred or taxed at a reduced rate; (C) withdrawals are conditioned on meeting specific criteria related to the purpose of the investment or savings account (for example, the provi....
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....equirements, namely:- (a) the account is funded solely with a down payment, earnest money, deposit in an amount appropriate to secure an obligation directly related to the transaction, or a similar payment, or is funded with a financial asset that is deposited in the account in connection with the sale, exchange, or lease of the property; (b) the account is established and used solely to secure the obligation of the purchaser to pay the purchase price for the property, the seller to pay any contingent liability, or the lessor or lessee to pay for any damages relating to the leased property as agreed under the lease; (c) the assets of the account, including the income earned thereon, will be paid or otherwise distributed for the benefit of the purchaser, seller, lessor, or lessee (including to satisfy such person's obligation) when the property is sold, exchanged, or surrendered, or the lease terminates; (d) the account is not a margin or similar account established in connection with a sale or exchange of a financial asset; and (e) the account is not associated with a depository account referred to in sub-clause (vii); (C) a....
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....udes credit balances resulting from merchandise returns; ^12[(viii) a depository account, other than U.S. reportable account, which represents all specified electronic money products held for the benefit of a customer, if the rolling average ninety-day end-of-day aggregate account balance or value during any period of ninety consecutive days did not exceed USD 10,000 at any day during the calendar year or other appropriate reporting period;] (2) "financial asset" includes a security (for example, a share of stock in a corporation; partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust; note, bond, debenture, or other evidence of indebtedness), partnership interest, commodity, swap (for example, interest rate swaps, currency swaps, basis swaps, interest rate caps, interest rate floors, commodity swaps, equity swaps, equity index swaps, and similar agreements), insurance contract or annuity contract, or any interest (including a futures or forward contract or option) in a security, partnership interest, commodity, swap, insurance contract, or annuity contract: Provided that "financial asset" shall not include a....
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....omers. Explanation.- For the purposes of item(iii), the term "exchange transaction'' means any - (i) exchange between relevant crypto-assets and fiat currencies; and (ii) exchange between one or more forms of relevant crypto-assets;] (B) the gross income of which is primarily attributable to investing, reinvesting, or trading in financial assets, if the entity is managed by another entity that is a depository institution, a custodial institution, a specified insurance company, or an investment entity mentioned in sub-clause (A) of this clause. Explanation 1.- An entity is treated as primarily conducting as a business one or more of the activities described in sub-clause (A) of this clause, or an entity's gross income is primarily attributable to investing, reinvesting, or trading in financial assets for purposes of sub-clause (B) of this clause, if the entity's gross income attributable to the relevant activities equals or exceeds fifty per cent. of the gross income of the entity during the shorter of the three-year period ending on 31st March of the year preceding the year in which the determination is made or the period during ....
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.... Participation Retirement Fund; or a Pension Fund of a Governmental entity, International Organization or Central Bank; (c) a non-public fund of the armed forces, Employees' State Insurance Fund, a gratuity fund or a provident fund; (d) an entity that is an Indian financial institution only because it is an investment entity, provided that each direct holder of an equity interest in the entity is a financial institution referred to in sub-clauses (a) to (c), and each direct holder of a debt interest in such entity is either a depository institution (with respect to a loan made to such entity) or a financial institution referred to in sub-clauses (a) to (c); (e) a qualified credit card issuer; (f) an investment entity established in India that is a financial institution only because it,- (I) renders investment advice to, and acts on behalf of; or (II) manages portfolios for, and acts on behalf of; or (III) executes trades on behalf of, a customer for the purposes of investing, managing, or administering funds or securities deposited in the name of the customer with a financial institution other than a non-pa....
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....ct to the common welfare or relate to the administration of a Department of Government: Provided also that income is considered to inure to the benefit of private persons if the income is derived from the Governmental entity engaged in a commercial business, such as a commercial banking business, which provides financial services to private persons; (ii) a controlled entity means an entity that is separate in form from the country or territory or that otherwise constitutes a separate juridical entity: Provided that- (a) the entity is wholly owned and controlled by one or more Governmental entities directly or through one or more controlled entities; (b) the entity's net earnings are credited to its own account or to the accounts of one or more Governmental entities, with no portion of its income inuring to the benefit of any private person; and (c) the entity's assets vest in one or more Governmental entities upon dissolution: Provided further that the income does not inure to the benefit of private persons if such persons are the intended beneficiaries of a Governmental programme, and the programme activities a....
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....und is generally exempt from tax on investment income, or taxation of such income is deferred or taxed at a reduced rate, due to its status as a retirement or pension plan; (b) the fund receives at least fifty per cent of its total contributions [other than transfer of assets from other plans referred to in clauses (D) to (G) or from retirement and pension accounts referred to in sub-clause (i) of clause (h) of Explanation to clause (1)] from the sponsoring employers; (c) distributions or withdrawals from the fund are allowed only in the event of retirement, disability or death [except rollover distributions to other retirement funds referred to in clauses (E) to (G), or retirement and pension accounts referred to in sub-clause (i) of clause (h) of Explanation to clause (1)], or penalties which apply to distributions or withdrawals made before such events; or (d) contributions (other than permitted make-up contributions) by employees to the fund are limited by reference to earned income of the employee or may not exceed an amount equivalent to fifty thousand U.S. dollars annually, applying the procedures set forth in clause (c) of sub-rule (7) of rule 114....
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....de for the payment of a gratuity to certain types of employees of an Indian employer specified in the Payment of Gratuity Act, 1972; (K) "provident fund" means a fund established under the Provident Funds Act, 1925 (19 of 1925) or the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) to provide current and former employees of Indian employers retirement benefits in consideration for services rendered: Provided that fund,- (i) does not have any beneficiary with a right to more than five per cent. of the fund's assets; (ii) is subject to Government regulation and provides annual information reporting about its beneficiaries to the income- tax authorities; (iii) is generally exempt from tax on investment income due to its status as a provident fund; and (iv) contributions (other than permitted make-up contributions) by employees to the fund are limited by reference to earned income of the employee or may not exceed an amount equivalent to fifty thousand U.S. dollars annually, applying the procedures set forth in clause (c) of sub-rule (7) of rule 114H for account aggregation and currency transla....
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....es are redeemed or immobilised as soon as possible, and in any event prior to the 1st January, 2017; ^19[(MA) "Qualified Non-Profit Entity" means an entity resident in India that has obtained confirmation by the Income-tax Department or other governmental authority of India that such entity meets all of the following conditions, namely: - (i) it is established and operated in India exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in India and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare; (ii) it is exempted from income tax in India; (iii) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets; (iv) the applicable laws of India or the entity's formation documents do not permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or a noncharitable entity other than pursua....
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....entify resident account holders for purposes of either information reporting or withholding of tax with respect to financial accounts held by residents or for purposes of satisfying the due diligence requirements under the Prevention of Money-laundering Act, 2002 (15 of 2003); (v) at least ninety eight per cent. of the financial accounts by value maintained by the financial institution are held by residents; (vi) beginning on or before the 30th June, 2014, the policies and procedures of the financial institution are consistent with those set forth in rule 114H, to prevent the financial institution from providing a financial account to any non-participating financial institution and to monitor whether the financial institution opens or maintains a financial account for any reportable person who is not a resident of India (including a non-resident who was a resident of India when the financial account was opened but subsequently ceases to be a resident of India) or any passive non-financial entity with controlling persons who are reportable persons; (vii) such policies and procedures explicitly provide that if any financial account held by a reportable pers....
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.... website does not permit the opening of a financial account; (iv) the financial institution does not have more than an amount equivalent to one hundred seventy-five million U.S. dollars in assets on its balance sheet, and the financial institution and any related entity, taken together, does not have more than an amount equivalent to five hundred million U.S. dollars in total assets on its consolidated or combined balance sheets; and (v) any related entity must be incorporated or organised in India, and any related entity that is a financial institution, with the exception of any related entity that is a retirement fund referred to in clauses (D) to (G) or a financial institution with only low-value accounts referred to in clause (P), must satisfy the requirements set forth in this clause. Explanation.- Regional Rural Banks constituted under the Regional Rural Bank Act 1976 (21 of 1976), Urban Cooperative Banks constituted under respective State Cooperative Societies Acts or Multi State Cooperative Societies Act, State Cooperative Banks or District Central Cooperative Banks constituted under respective State Cooperative Societies Act and Local Area Banks ....
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....equires an affiliate of the financial institution to act, as a sponsoring entity for the financial institution; and (c) the financial institution shares a common electronic account system with the sponsoring entity that enables the sponsoring entity to identify all account holders and payees of the financial institution and to access all account and customer information maintained by the financial institution including, but not limited to, customer identification information, customer documentation, account balance, and all payments made to the account holder or payee, and that complies with the following requirements namely:- (I) the sponsoring entity is authorised to act on behalf of the financial institution (such as a fund manager, trustee, corporate director, or managing partner) to fulfil applicable registration requirements of the United States of America; (II) the sponsoring entity has registered as a sponsoring entity with the United States of America; (III) if the sponsoring entity identifies any U.S. reportable account with respect to the financial institution, the sponsoring entity registers the financial institution pursuant....
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....equity interests in the financial institution and is itself a sponsored financial institution described in this clause); and (v) the sponsoring entity complies with the following requirements, namely:- (a) it has been registered as a sponsoring entity in terms of the Foreign Account Tax Compliance Act of the United States of America; (b) the sponsoring entity agrees to perform, on behalf of the financial institution, all due diligence, withholding, reporting, and other requirements that the financial institution would have been required to perform if it were a reporting financial institution and retains documentation collected with respect to the financial institution for a period of six years; (c) the sponsoring entity identifies the financial institution in all its reporting completed on the financial institution's behalf; and (d) the sponsoring entity has not had its status as a sponsor revoked; ^20[(5A) "relevant crypto-asset" means any crypto-asset-- (a) that is not a Central Bank Digital Currency; or (b) that is not a specified electronic money product; or (c) for which the reporting crypto-a....
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....the entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the entity shall not qualify for this exception after the date that is twenty four months after the date of the initial organisation of the entity; or (vi) the entity was not a financial institution in the past five years, and is in the process of liquidating its assets or is reorganising with intent to continue or recommence operations in a business other than that of a financial institution; or (vii) the entity primarily engages in financing and hedging transactions with, or for, related entities which are not financial institutions, and does not provide financing or hedging services to any entity which is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution; or (viii) the entity fulfils all of the following requirements, namely:- (a) it is established and operated in India exclusively for religious, charitable, scientific, artistic, cult....
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....ed on the 24th January, 2013 by the Securities and Exchange Board of India; or (iii) IRDA/SDD/GDL/CIR/019/02/2013, issued on the 4th February, 2013 by the Insurance Regulatory and Development Authority. Explanation 2.- In the case of a trust, the controlling person means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, the said expression means the person in equivalent or similar position; (C) "non-financial entity" means any entity that is not a financial institution; (D) "passive non-financial entity" means,- (i) any non-financial entity which is not an active non-financial entity; or (ii) an investment entity described in sub-clause (B) of clause (c) of the Explanation to ^2[clause (3), which is not located in any of the jurisdictions specified by the Central Board of Direct Taxes in this behalf]; or ^3[(iii) not a withholding foreign partnership or a withholding foreign trust;] (E) an entity is a "related entity" of anoth....
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....ry or an estate of a decedent who was a resident of any country or territory outside India (except the United States of America) under the tax laws of such country or territory; (9) "specified U.S. person" means a U.S. Person, other than the persons referred to in sub-clauses (i) to (xiii) of clause (ff) of Article 1 of the FATCA agreement; ^23[(9A) "Specified Electronic Money Product" means any product that satisfies following criteria, namely:- (a) it is a digital representation of a single fiat currency; (b) it is issued on receipt of funds for the purpose of making payment transactions; (c) it is represented by a claim on the issuer denominated in the same fiat currency; (d) it is accepted in payment by a natural or legal person other than the issuer; and (e) it is, by virtue of regulatory requirements to which the issuer is subject, redeemable at any time and at par value for the same fiat currency upon request of the holder of the product. Explanation - For the purposes of this clause, - (i) 'Specified Electronic Money Product' does not include a product created for the sole purpose of facilitati....
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....ncome, if such payment is from sources within the United States of America: Provided that a U.S. source withholdable payment shall not include any payment that is not treated as a withholdable payment in relevant Treasury Regulations of the United States of America; (13) "withholding foreign partnership" means a foreign partnership that has entered into a withholding agreement with the United States of America in which it agrees to assume primary withholding responsibility for all payments which are made to it for its partners, beneficiaries or owners; (14) "withholding foreign trust" means a foreign trust that has entered into a withholding agreement with the United States of America in which it agrees to assume primary withholding responsibility for all payments which are made to it for its partners, beneficiaries or owners.] ************** NOTES:- 1. Inserted vide Notification No. 62/2015 dated 07-08-2015 2. Substituted vide Notification No. 48/2016 dated 20-06-2016 before it was read as, "clause (3)" 3. Substituted vide Notification No. 48/2016 dated 20-06-2016 before it was....