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Clause 495 empowers the Central Government, after consultation with the Chief Justice of the High Court, to notify one or more courts of Judicial Magistrate of the first class as Special Courts for specified areas, cases or classes of cases to try offences under the Income Tax Bill, 2025; it permits these Special Courts to try related offences joined at the same trial under the applicable criminal procedure and updates procedural references to the Bharatiya Nagarik Suraksha Sanhita, 2023, while preserving the core scheme of Section 280A.
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Clause 479 criminalizes the willful failure to furnish returns of income, applying to statutory filing obligations and notice-triggered duties, and establishes a graded criminal penalty regime tied to the tax that would have been evaded. It preserves a mens rea requirement, mandates imprisonment and fine across tiers, and provides exemptions including a one-year cure period to avoid prosecution and a de minimis exception for non-corporate taxpayers, while raising interpretative issues on the definition of wilfulness and calculation of evaded tax.
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Clause 476 criminalizes failure to deposit taxes deducted or collected at source under Chapter XIX-B, extending liability to those who "pay or ensure payment" and prescribing rigorous imprisonment and fine. A proviso bars prosecution if the tax is credited to the Central Government on or before the time prescribed for filing the relevant TDS statement, while cross references to notes and tables expand the catalogue of covered transactions and may complicate interpretation.

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Comparison of Section 208 "Tax on income from units purchased in foreign currency or capital gains arising from their transfer." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

5 September, 2025

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Section 208 Tax on income from units purchased in foreign currency or capital gains arising from their transfer.

Income-tax Act, 2025

At a Glance

The provided document is Clause 208 of the Income Tax Bill, 2025 - (Old Version), titled "Tax on income from units purchased in foreign currency or capital gains arising from their transfer." It prescribes special tax treatment for "overseas financial organisations" investing in specified Indian units. The provision affects offshore funds and, indirectly, specified mutual funds and public financial institutions. Effective date or enactment timing: Not stated in the document.

Background & Scope

Statutory hooks: Clause 208 is located in the Bill under the heading "Special provisions relating to non-residents and foreign company." It provides a targeted tax regime for an "overseas financial organisation" (Offshore Fund) that invests in India under arrangements with specified Indian entities and with SEBI approval. The clause covers income received in respect of units purchased in foreign currency, long-term capital gains on transfer of such units, and the balance of total income. Definitions provided in the clause include "overseas financial organisation," "public financial institution" (by reference to section 2(72) of the Companies Act, 2013), and "unit" (unit of a mutual fund specified in Schedule VII or the Unit Trust of India). Contextual policy objectives: Not stated in the document.

Statutory Provision Mode

Text & Scope

The clause creates a composite tax structure for Offshore Funds. The tax payable is determined by a table with three categories:

  • Income received in respect of units purchased in foreign currency - Income-tax payable stated as "10%."
  • Long-term capital gains arising from transfer of such units - Income-tax payable stated as "12.5%."
  • "Total income as reduced by income referred to in against serial numbers 1 and 2" - tax treatment described as "Income-tax chargeable on such income."

Paragraph (2) addresses deduction limitations: where the Offshore Fund's gross total income consists only of the unit income or long-term capital gains (or both), no deductions are allowed u/ss 26-61 or section 93(1)(a) and (e) or under Chapter VIII. If gross total income includes such income along with other income, the clause requires that the gross total income be reduced by the unit incomes for the purpose of allowing Chapter VIII deductions "as if" the reduced gross total income were the fund's gross total income.

Interpretation

The clause establishes a preferential/segregated tax treatment for certain categories of income of Offshore Funds rather than taxing the whole global income under general rates. The table reflects source-specific rates (10% and 12.5%) and contemplates residual income taxed under ordinary provisions. The language in paragraph (1) as drafted in the Bill treats the column C entries as amounts payable; given those are percentages, interpretation requires reading them as rates. The clause also attempts to ring-fence specified incomes for limited deduction access, suggesting a legislative intent to limit deduction claims against the preferred categories. Legislative intent beyond the text: Not stated in the document.

Exceptions/Provisos

Paragraph (2) provides the principal exception: where the fund's gross total income consists solely of the specified unit incomes, the clause disallows a broad swathe of deductions (sections 26-61, section 93(1)(a) & (e), and Chapter VIII). Where specified incomes form part of a mixed income stream, the specified incomes are to be segregated out for deduction computation purposes so that Chapter VIII deductions are allowed on the residual gross total income. Any other provisos or carve-outs: Not stated in the document.

Illustrations

  • Example 1: An Offshore Fund has only income of 10 million INR from units purchased in foreign currency. Under the clause, that income would be subject to 10% tax; no deductions u/ss 26-61 or Chapter VIII would be allowable. The document does not state whether tax computation permits exemptions or credits; hence further computation specifics: Not stated in the document.
  • Example 2: An Offshore Fund has 10 million INR of unit income (subject to 10%) and 2 million INR of other income. The clause directs that the gross total income be reduced by the unit income for deduction purposes and that Chapter VIII deductions be allowed as if the reduced gross total income (2 million) were the gross total income. The document does not state how Chapter VIII deductions interact with other statutory reliefs or whether the 10% rate applies after or before such segregation for other taxes: Not stated in the document.

Interplay

The clause cross-references several statutory provisions: section 93(1)(a)/(e), Chapter VIII (deductions), sections 26-61, and the Companies Act definition for "public financial institution" (section 2(72)). It also references Schedule VII entries for identifying eligible mutual funds and requires SEBI approval for the arrangement. No implementing Rules, Notifications, or Circulars are cited in the Bill text provided. Where interaction with other tax provisions or double taxation treaties may arise: Not stated in the document.

Differences Between Section 208 of the Income-tax Act, 2025 and Clause 208 of the Income Tax Bill, 2025 - (Old Version) and Practical Impact

The two texts are substantially similar in structure and substantive content. Key textual differences and their practical impact are as follows:

  • Terminology for tax computation (Table column heading): The Act version (Section 208) states "Rate of income-tax payable" in column C, whereas the Bill (Clause 208 old version) uses "Income-tax payable" and, for item 3, "Income-tax chargeable on such income."
    • Practical impact: None substantive - both convey that fixed rates apply for specified incomes and the prevailing rates apply to the balance; the Act wording is marginally clearer in signalling rate-based computation.
  • References to section numbers for disallowance/deductions: Section 208 (Act) disallows deductions under "sections 28 to 58, 60 and 61 or section 93(1)(a) or (e) or under Chapter VIII"; Clause 208 (Bill) disallows deductions under "sections 26 to 61 or section 93(1)(a) and (e) or under Chapter VIII."
    • Practical impact: Potential substantive difference - the Bill's broader range (sections 26-61) would exclude more deductions if it were applied; the Act's narrower list (28-58, 60, 61) narrows the exclusion. If the Act text is authoritative, certain deductions falling in sections 26-27 or 59 would remain available; conversely, the Bill's earlier drafting would have disallowed those. The provided materials do not state legislative intent for this change.
  • Computation language for aggregate tax: Section 208(1) (Act) states the tax "shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B." The Bill phrasing said "shall be the aggregate of the amount specified in column C thereof."
    • Practical impact: The Act wording better describes rate application (rate x income); the Bill wording could be read as implying fixed amounts in column C. However, because column C contains percentage figures, the Act wording reduces ambiguity. The documents do not state any consequential computational rules beyond the table.

Practical Implications

  • Compliance and risk areas grounded in the clause: Offshore Funds must establish that (i) the investment arrangement is with an eligible public sector bank, public financial institution or specified mutual fund; and (ii) the arrangement has SEBI approval. The clause conditions preferential tax treatment on these qualifying facts; documentation and SEBI approval evidence will be material. Any procedural details or documentary standards: Not stated in the document.
  • Record-keeping/evidence points suggested by the text: maintain records of the arrangement with Indian entities, SEBI approval, characterization of units as "purchased in foreign currency," computation segregating incomes and application of the specified rates. The clause does not prescribe exact records or timeframes for retention: Not stated in the document.

Key Takeaways

  • Clause 208 creates a separate tax regime for Offshore Funds investing in specified Indian units with SEBI-approved arrangements.
  • Specified incomes are taxed at 10% (income from units purchased in foreign currency) and 12.5% (long-term capital gains on transfer of such units); other income is taxed under ordinary provisions.
  • Deductions are broadly restricted where an Offshore Fund's gross total income consists solely of the specified incomes (disallowance stated for sections 26-61, section 93(1)(a) & (e), and Chapter VIII).
  • Where specified incomes coexist with other income, the clause requires segregation so Chapter VIII deductions apply to the residual income "as if" that residual were the gross total income.
  • Definitions and eligibility pivot on arrangements with specified Indian entities and SEBI approval; precise procedural and evidentiary requirements are not set out in the Bill text.
  • Certain drafting differences between the Bill and the later Act text (e.g., the range of sections listed for disallowance and the phrasing of tax computation) may affect deduction availability and interpretive clarity.

Full Text:

Section 208 Tax on income from units purchased in foreign currency or capital gains arising from their transfer.

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Acts Income Tax