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Section 451 authorises the Assessing Officer to impose a penalty equal to the sum received by a person in contravention of the relevant statutory provision; the earlier Bill expressly allowed escape if the recipient proved "good and sufficient reasons," but the enacted text omits that proviso, leaving the ambit of any exception, standards for evaluation, and the character of assessing discretion unspecified.
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Clause 439 creates a penalty regime for under reporting and aggravated misreporting during tax proceedings by defining deemed under reporting events, prescribing formulae to compute under reported income (including interactions with deemed total income rules), allocating additions across years to prevent double counting, listing exceptions where penalties will not apply, enumerating aggravating misreporting acts that attract higher sanctions, and requiring that penalty be imposed by written order of the Competent Authority.
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A mandatory daily fee applies where a person fails to deliver a prescribed statement of tax deducted or collected at source within the time prescribed in a cross referenced subsection; the fee accrues each day until compliance, is capped so it does not exceed the amount of tax deductible or collectible for the period, and must be paid before delivering the delayed statement, without prejudice to other liabilities under the Act.
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Section 425 imposes interest where advance tax instalments fall short of prescribed percentages by due dates, tying liability to tax due on the returned income. It prescribes staged instalment percentages and graduated interest on interim versus final shortfalls, provides two early safe harbour minima that eliminate interest if met, treats certain classes (profits declared under specified entries) with a distinct simple interest rule for the final instalment, and exempts shortfalls from interest for specified late arising incomes if taxed by later instalments or by 31 March.
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Advance tax obligation: taxpayers must self estimate income and pay instalments, with permitted adjustments to remaining payments.
Every person liable to pay advance tax must remit instalments based on the assessee's own estimate of current income (the specified sum) and the tax thereon, calculated by the prescribed method and paid at prescribed instalment percentages and due dates; taxpayers may increase or reduce amounts in remaining instalments to reflect revised estimates, and the clause itself defines specified sum but is silent on exceptions, enforcement, interest, penalties and procedural recordkeeping.
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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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Certificates for lower tax withholding enable AO-issued rates or nil deduction and proportionate nonresident withholding relief.
Clause creates an AO-issued certificate system permitting payees, buyers/licensees/lessees and payers to obtain prescribed-form certificates altering the rate (or, under the Act, rate or nil deduction) at which tax is deducted or collected; for non-salary payments to non-residents the payer may seek a proportionate determination of the taxable part; deductors/collectors must issue prescribed documentary certificates to deductees/collectees and the AO may cancel certificates after affording a reasonable opportunity, with detailed forms, validity and procedures left to rules.

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Comparison of SCHEDULE VI "INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS IN INTERNATIONAL FINANCIAL SERVICES CENTRE OR HAVING INCOME THEREFROM" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

18 September, 2025

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SCHEDULE VI - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS IN INTERNATIONAL FINANCIAL SERVICES CENTRE OR HAVING INCOME THEREFROM

Income-tax Act, 2025

At a Glance

Schedule VI in the Income Tax Bill, 2025 (Old Version). It lists categories of income not to be included in total income of certain eligible persons connected with International Financial Services Centres (IFSCs). It matters to non-residents, IFSC units, specified funds, offshore banking units, portfolio managers and investors in such funds. 

Background & Scope

Statutory hook: Schedule VI is presented "See section 11" and is annexed to the Income Tax Bill, 2025 (Old Version). The Schedule identifies income heads and categories of eligible persons whose specified incomes "shall not be included" in total income, subject to conditions in Column D and definitions in accompanying Notes. The Schedule addresses income relating to transfers on recognised stock exchanges in IFSCs, transfers of securities, income from securitisation trusts, derivative transactions with IFSC participants, royalty/interest on lease of aircraft/ship, portfolio management receipts, capital gains on shares of domestic companies with IFSC units, specified fund returns, dividend receipts from IFSC units engaged in leasing, and interest payable by IFSC units. Definitions and clarificatory notes appear as Note 1 through Note 7 and specify terms such as "convertible foreign exchange," "investment division of offshore banking unit," "manager," "permanent establishment," "securities," "securitisation trust," "specified fund," "sponsor," "trust," and "units." The Schedule incorporates cross-references to other statutes and regulations including the Reserve Bank of India, Securities and Exchange Board of India Regulations, the International Financial Services Centres Authority Acts/Regulations and the Special Economic Zones Act.

Statutory Provision Mode

Text & Scope

Coverage: The Schedule is a table of 12 distinct items describing income types that are excluded from total income of defined eligible persons. Each row sets out (A) a description of income; (B) the eligible person; and (D) conditions for the exclusion. Core items include capital gains on transfers u/s 70(1)(r) on recognised IFSC exchanges (Sl.1), transfers of securities excluding shares of resident companies (Sl.2), income from non-resident issued securities (Sl.3), securitisation trust income (Sl.4), NDFs/ODIs/OTC derivatives transfers or distributions (Sl.5), royalty/interest on aircraft/ship leases (Sl.6), income from portfolios managed in IFSC contexts (Sl.7), capital gains on domestic company equity where the domestic company is an IFSC unit (Sl.8), income from specified funds (Sl.9), capital gains on transfer of shares of Indian resident companies linked to relocation to a resultant fund (Sl.10), dividends received by IFSC units engaged in leasing (Sl.11), and interest payable by IFSC units for borrowings on/after 1 September 2019 (Sl.12).

Interpretation

The Schedule operates as a negative inclusion clause-income of specified description shall not be included in total income when the conditions are satisfied. Legislative intent, as evidenced by cross-references and delegated prescription language, is to create tax neutrality or favourable tax treatment for financial activities routed through IFSCs and for specified funds and their non-resident unit-holders, subject to regulatory/formal conditions to prevent abuse. The repeated use of delegated-law phrasing ("as prescribed") indicates Parliament's intent to allow Central Government/Regulator-level granular conditions and computations to be specified by rules/regulations.

Exceptions/Provisos

Carve-outs: Many exclusions are conditional-e.g., Sl.1 requires consideration in convertible foreign exchange and that exemption be only to extent attributable to units held by non-residents or investment divisions of offshore banking units. Sl.3 requires that the income otherwise does not accrue or arise in India. Sl.6 requires that the paying IFSC unit has commenced operations on or before 31 March 2030. Sl.8 confines the capital gains exclusion to specified 10-year windows from commencement of operations (or from 1 April 2023 where applicable). Sl.10 requires transfer to a resultant fund via relocation and restricts the benefit to the extent attributable to units held by non-residents. Several notes set out detailed definitional provisos; for instance, "specified fund" requires Category III AIF registration or IFSC fund regulation and unit-holding restrictions (allowing a sponsor/manager unit and limited resident holdings up to 5% subject to conditions).

Illustrations

  • Fund A, a trust in an IFSC with all units held by non-residents, sells securities on a recognised IFSC exchange and receives convertible foreign exchange. The capital gains on the transfer may be excluded from total income of the specified fund subject to the computation rules (Not stated in the document: precise computation formula).
  • Non-resident investor receives distribution from an offshore derivative instrument entered into with an offshore banking unit in an IFSC. If the contract is with an offshore banking unit or an FPI unit of IFSC and conditions as prescribed are met, the income may be excluded from the non-resident's total income.
  • A domestic company that is an IFSC unit engaged primarily in aircraft leasing commences operations on 1 April 2024. Capital gains arising on transfer of its equity in a tax year within ten tax years may be excluded for an eligible non-resident or IFSC unit purchaser, subject to the stated conditions.

Interplay

The Schedule expressly references several external statutes and regulatory instruments: the Foreign Exchange Management Act, 1999 (for convertible foreign exchange), SEBI AIF Regulations, 2012, SEBI FPI Regulations, 2019, IFSC Authority (Fund Management) Regulations, 2022, IFSC Authority (Capital Market Intermediaries) Regulations, 2021, Special Economic Zones Act (for definition of Unit), and domestic Income-tax Act sections (section 70(1)(r), section 70(2), section 173(c), section 221(6)(d)). The Schedule anticipates delegated rules for computation and qualification ("as prescribed"), indicating reliance on subsequent notifications/circulars to operationalise conditions and valuation/computation methodologies. Specific cross-references (e.g., to section 147 for IFSC units) are used to tie tax treatment to statutory characterisation of IFSC entities.

Differences Between Documents

  • (Sl. No. 9) - Treatment of income from a specified fund or on transfer of units: Document 1 (Schedule VI of Income-tax Act, 2025) explicitly records the entry in Column D as "Nil." Document 2 (Income Tax Bill, 2025 - Old Version) leaves Column D blank (non-filled).
    • Practical impact: The Act version removes doubt by expressly providing nil conditions for the eligible person, which clarifies that no further conditions are required for that entry; the Bill's version could have generated uncertainty on whether any qualifying conditions applied.
  • Drafting and formulation differences - use of legislative phrasing: Document 1 consistently uses "as may be prescribed" in several conditions (e.g., Sl. No.1(c) "shall be computed in such manner as may be prescribed"), whereas Document 2 often uses the shorter "as prescribed" or "as notified" in similar places.
    • Practical impact: The Act version's "as may be prescribed" is the conventional indicative of delegated legislation; the Bill's shorter phrasing is substantively similar but the Act wording aligns with settled legislative drafting norms and can be interpreted as a clearer delegation to rulemaking authorities.
  • Definitions structure for "specified fund" (Note 1(g)): There are re-arrangements and slight reformulations. Document 2 presents sub-clauses (A) and (B) and then (C) and (D) (with (C) stating location and (D) the unit-holding exceptions). Document 1 embeds the location requirement as part of the initial description ("a fund ... located in International Financial Services Centres") and then sets out regulatory regimes (I) and (II) and other descriptive elements.
    • Practical impact: The Act text (Document 1) is more tightly structured to associate regulatory regime and location in a single sentence which aids interpretation that location in an IFSC is an essential attribute; the Bill's layout might have been read as fragmented and therefore more ambiguous regarding whether regulation or location were independent requirements.
  • Specific phrase differences in examples and notes: e.g., Document 2 uses "monies" in Note to Sl. No. 12 whereas Document 1 uses "moneys" (spelling variation); Document 1 cites the International Financial Services Centres Authority regulations (with years) similarly to Document 2 but sometimes presents the regulatory citation with slightly different punctuation and parenthetical years.
    • Practical impact: These are drafting-level differences with minimal substantive effect but the Act's editorial consistency reduces risk of citation ambiguity.
  • Scope of some clauses (Sl. No. 5 and related notes): Document 1 expressly includes "over-the-counter derivatives" in the heading of clause 5(b) and in certain cross references, and clarifies that qualifying counterparty may be "an offshore banking unit of an International Financial Services Centre as referred to in section 147 or any Foreign Portfolio Investor being a unit of an International Financial Services Centre." Document 2 contains a similar formulation but with slightly different punctuation and omission of the phrase "as referred to in section 147" in one place.
    • Practical impact: Document 1's explicit cross-reference to section 147 and consistent phraseology provides stronger statutory linkage to IFSC units, reducing interpretive friction when applying provisions to offshore banking units and FPIs.
  • Computational/technical wording: Document 1 uses "shall have the meanings respectively assigned to them in the Notes below the said Table" and similar phrasing; Document 2 has near identical phrasing but differs in capitalization and small syntactic points.
    • Practical impact: No substantive difference; primarily editorial and drafting refinement in the Act.

Practical Implications

  • Compliance and risk areas: Taxpayers and fund managers must ensure strict compliance with the unit-holding criteria for "specified funds" (non-resident majority with narrow resident exceptions) and with commencement-of-operations timelines (notably 31 March 2030). Failure to meet conditions will negate the exclusion. Reliance on delegated rules is necessary for computation-non-availability of notified rules would create compliance risk.
  • Record-keeping/evidence: The text implies the need to maintain documentary evidence of (i) convertible foreign exchange receipt, (ii) unit-holding registers showing resident/non-resident status and percentages, (iii) documentation of transfers on recognised IFSC stock exchanges, (iv) contracts with offshore banking units/FPIs for derivative transactions, (v) dates of commencement of operations for IFSC units, and (vi) particulars of relocation transfers between original and resultant funds. The Schedule itself does not prescribe specific documents-administrative rules likely will.

Key Takeaways

  • Schedule VI lists discrete income categories excluded from total income for specified IFSC-related actors, subject to conditions and definitions.
  • The exclusions primarily benefit non-residents, IFSC units, specified funds and their non-resident unit-holders to foster IFSC financial activity.
  • Many exclusions are conditional (convertible foreign exchange, unit-holding restrictions, commencement dates, 10-year windows), making eligibility fact-sensitive.
  • The Schedule relies on external regulations and delegated "prescribed" rules for computation and detailed conditions; absence of those rules may impede operational application.
  • Robust records proving non-resident status of unit-holders, transactional currency, dates of commencement and contractual counterparties will be central to claiming the exclusions.
  • Some drafting ambiguities in the Bill may have been clarified in subsequent Act drafting (e.g., explicit "Nil." for Sl.9 in the Act), underscoring the importance of checking final enacted text and notifications.

Full Text:

SCHEDULE VI - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS IN INTERNATIONAL FINANCIAL SERVICES CENTRE OR HAVING INCOME THEREFROM

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Acts Income Tax