Incentives to International Financial Services Centre: proposed tax and regulatory amendments to further promote IFSC operations in non rupee currencies IFSC is a jurisdiction providing financial services to non-residents and permitted residents in currencies other than the Indian Rupee; prior tax concessions have been granted to IFSC units to develop financial infrastructure, and the Union Budget 2025-26 proposes further amendments to provide additional incentives for operations from IFSC units, building on existing concessions to enhance its attractiveness for international financial services.
IFSC tax concession sunset extension extends commencement and relocation deadlines to March 2030, effective April 2025. The Finance Bill proposes extending sunset dates for tax concessions tied to IFSC units and relocation of funds to IFSC, moving the deadline for commencement and relocation-related benefits to 31 March 2030; these amendments take effect from 1 April 2025.
Life insurance exemption extended to IFSC-issued policies without premium cap, improving parity for non-residents and clarifying scope. Exemption for amounts received under life insurance policies, including bonuses, will expressly apply to policies issued by IFSC insurance offices; the proposed amendment removes the existing premium-cap condition for IFSC-issued policies to provide parity for non-resident policyholders, while leaving other exemption conditions intact, effective 1 April 2025.
Exemption to capital gains and dividend expanded to ship leasing units in IFSC, aligning tax treatment with aircraft leasing. The measure extends existing IFSC exemptions applying to aircraft leasing so that non residents or IFSC units engaged in ship leasing are exempt from capital gains tax on transfers of equity shares of domestic companies that are IFSC ship leasing units, and dividends paid by an IFSC ship leasing company to another IFSC ship leasing unit are likewise exempt. The amendment aligns ship leasing with aircraft leasing treatment and specifies an effective commencement under the Finance Bill.
Dividend definition clarified for IFSC treasury centres-group entity loans to finance units excluded from dividend rules subject to conditions. The proposal narrows the scope of dividend for IFSC corporate treasury centres by excluding advances or loans between group entities where one is a Finance company or Finance unit in IFSC acting as a global or regional corporate treasury centre, provided the parent or principal entity is listed on an overseas stock exchange (with Board specified exceptions). Conditions defining group entity, principal entity and parent entity will be prescribed, and the amendment is to take effect from the stated effective date.
Business connection exemption for IFSC fund managers streamlined with timing relief and relaxed conditions for qualifying managers. Amendments to Section 9A rationalise the resident participation condition by testing aggregate participation on 1 April and 1 October of the previous year, with a four month period to cure deficiencies. Clause (c) will otherwise remain unmodified for all eligible funds and managers. Additionally, clauses (a)-(m) may be relaxed for eligible funds whose IFSC based eligible fund managers commenced operations on or before the specified commencement date under sub section (8A). The amendments take effect from 1 April 2025.
Exemption for non-resident derivative income expanded to include FPIs in IFSC units, subject to prescribed conditions. The amendment broadens clause (4E) of section 10 to exempt from a non-resident's total income income from transfer of non-deliverable forward contracts, offshore derivative instruments, over-the-counter derivatives, and distribution of income on offshore derivative instruments when entered into with Foreign Portfolio Investors that are IFSC units, subject to prescribed conditions and applicable from the notified effective assessment year onward.
Tax-neutral relocation: inclusion of retail schemes and ETFs in IFSC resultant fund definition enables tax-neutral transfers for investors. The amendment adds retail schemes and Exchange Traded Funds (ETFs) established and regulated in the IFSC to the definition of resultant fund, so that transfers by investors of shares, units or interests in an original fund in exchange for interests in such IFSC funds are not treated as transfers for capital gains purposes, preserving the tax-neutral nature of relocations into IFSC funds.
Long-term capital gains exemption for sovereign wealth and pension funds extended; investment deadline moved to 2030, effective April. Clause (23FE) of section 10 is amended to exclude long-term capital gains arising from investments in India from the total income of specified persons, even if such gains are deemed short-term under section 50AA, and to extend the qualifying investment date from 31st March, 2025 to 31st March, 2030; the amendments take effect from 1st April, 2025.
Presumptive taxation for non-resident service providers to electronics manufacturing facilities creates a deemed profit basis, reducing effective tax. A presumptive taxation regime under proposed section 44BBD deems a fixed proportion of aggregate amounts received/receivable or paid/payable to non-residents for providing services or technology to resident companies establishing or operating electronics manufacturing or connected facilities under a Central Government notified scheme as profits and gains, simplifying tax treatment and lowering the effective tax on gross receipts, subject to prescribed conditions and rules.
Tonnage tax extension to inland vessels allows eligible inland ships to opt into the tonnage tax regime from AY 2026 27. Inland vessels registered under the Inland Vessels Act, 2021 are made eligible as qualified ships for the tonnage tax regime by aligning the income tax definition of inland vessels with that Act and by introducing corresponding amendments to extend tonnage tax benefits to inland vessels. The amendments are effective from 1 April 2026 and apply to the assessment year 2026 27 and subsequent assessment years.
Charitable trust tax exemption requires registration and compliance with application, approval and cancellation procedures under the law. Income of a trust or institution is exempt only if it meets statutory conditions and maintains registration; one provision governs the application procedure to obtain registration to claim exemption, another governs approval and cancellation of registration, and a separate provision disqualifies exemption where specified conditions are not satisfied.
Specified violation classification: incomplete registration applications excluded from grounds for cancellation under section 12AB, limiting tax exposure. The Finance Bill amends the Explanation to sub section (4) of section 12AB to provide that situations in which the application for registration of a trust or institution is not complete shall not be treated as a specified violation for purposes of cancellation of registration, thereby excluding mere incompleteness of the registration application from grounds that could trigger cancellation and consequent taxability under Chapter XII EB.
Registration period for smaller trusts extended to reduce compliance where income and application criteria are met. The period of registration for trusts or institutions that apply under the specified application categories of section 12A(1)(ac) will be extended from five years to ten years where the total income, before applying sections 11 and 12, does not exceed the stated income threshold in each of the two preceding years; the change aims to reduce compliance for smaller trusts and will take effect from 1 April 2025.
Substantial contribution threshold revised, narrowing specified persons and excluding relatives and related concerns from applicability. The amendment recalibrates the substantial contribution test by raising annual and aggregate contribution thresholds so that only larger contributors qualify as specified persons, and excludes relatives and concerns in which such contributors have substantial interest from the specified persons list; the changes apply prospectively from the Finance Bill's commencement date.
Taxation of business trusts clarified: long-term capital gains treatment for units preserved alongside maximum marginal rate application. The Finance Bill amends the taxation of business trusts to clarify that a business trust's total income remains taxable at the maximum marginal rate but subject to the long-term capital gains provision applicable to units of a business trust, thereby preserving pass-through taxation of interest, dividend and rental income in the hands of unit holders and explicitly aligning capital gains treatment with the special regime for REITs and InVITs.
Significant economic presence exclusion clarified: purchases in India solely for export do not create business connection and are excluded. Amendment clarifies that transactions confined to the purchase of goods in India for export by a non resident shall not constitute Significant Economic Presence and therefore shall not constitute a Business Connection in India under section 9, aligning Explanation 2A with the exclusion in Explanation 1 and preserving the non taxable character of purchase for export operations.
Capital treatment of ULIP redemptions clarified: ULIPs without insurance exemption taxed as capital gains and treated as capital assets. The proposal treats Unit Linked Insurance Policies for which the insurance-exemption does not apply as capital assets, mandates that profits on their redemption be taxed as capital gains, and includes those ULIPs within the definition of equity oriented funds for preferential capital-gains treatment; the measure responds to an existing premium-based exemption threshold and distinguishes non-ULIP life policy proceeds taxed as income from other sources where exemption is inapplicable.
Capital asset classification: securities held by specified investment funds treated as capital assets, producing capital gains treatment. The Act is amended to treat securities held by investment funds that acquired them in accordance with securities-market regulations as capital asset, so that any income from their transfer will be treated as capital gain; the amendment applies prospectively from the specified commencement and to subsequent assessment years.
Start-up tax deduction extended, expanding eligibility for newly incorporated start-ups to a later cutoff while retaining certification conditions. Amendment extends the temporal eligibility for the startup tax deduction, preserving the mechanism that permits an eligible start up to claim a full deduction of profits for a limited number of assessment years from the year of incorporation, conditional on meeting the turnover ceiling, holding an eligibility certificate from the inter ministerial board, and making the elective claim; the amendment moves the incorporation cutoff forward and takes effect from 1 April 2025.
Withholding definitions expanded to include both incorrect deduction and collection rates, increasing administrative scrutiny of statements. Section 402 provides the definitional framework for deduction and collection at source, specifying who is a person responsible for paying, buyer, seller ... Summary
Withholding definitions expanded to include both incorrect deduction and collection rates, increasing administrative scrutiny of statements.
Section 402 provides the definitional framework for deduction and collection at source, specifying who is a person responsible for paying, buyer, seller and other categories, and defining transactional terms including rent, immovable property and digital-economy roles. The Act expands the concept of an "incorrect claim apparent from any information in the statement" to cover both incorrect rates of deduction and incorrect rates of collection, thereby enabling identification of filing errors from statements alone. Turnover thresholds and carve-outs determine when withholding obligations arise; several definitions rely on cross-references to external provisions.
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