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Mandatory cessation of reassessment proceedings when taxpayer demonstrates assessed amount meets correct liability, limiting assessing officer discretion.
Section 285 fixes tax in section 279 proceedings at rates as if escaped income were included, conditions mandatory cessation of those proceedings on two cumulative showings by the assessee (assessment not lower than correct liability or properly made assessment/computation, and absence of any impugnment under specified challenge provisions), and renders final that cessation by barring reopening of matters concluded by listed orders; procedural modalities and evidentiary standards are not specified.
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Assessment notices to implement appellate orders may be issued at any time, subject to existing time-bar exceptions.
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Pre-notice hearing requirement: AO must serve show-cause and disclose information before issuing an escape-assessment notice.
An Assessing Officer with information suggesting escaped income must serve a show-cause notice disclosing the information and allow the assessee to reply; after considering the reply and material on record the AO must obtain the prior approval of the specified authority before issuing a clause 280 notice. The pre-notice procedure is inapplicable where information arises from the scheme under section 260, Approving Panel directions under section 274(6), or findings in orders by an authority, Tribunal or court.
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Reassessment powers: AO may assess escaped income and recompute allowances, even when certain procedural steps were not complied with.
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Act Rules Income Tax
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Hierarchical approval for anti-avoidance: internal review can produce binding, non-appealable determinations affecting assessments and applicable tax years.
Clause 274 permits an Assessing Officer to refer suspected impermissible avoidance arrangements to the Principal Commissioner/Commissioner, who must issue a reasons-based notice and afford a hearing; if not satisfied, the officer refers the matter to an Approving Panel. The Panel may order inquiries, call for records, specify tax years of applicability and issue binding, non-appealable directions; time limits and specified exclusions apply, and the Board will constitute and support Panels and may make rules for their functioning.
Act Rules Income Tax
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Best-judgment assessment: AO may determine income where required returns or responses to notices are not furnished.
Section 271 empowers the Assessing Officer to make a best-judgment assessment where required returns are not furnished or where the assessee fails to comply with notices under sections 268 or 270(8); the AO must consider all relevant materials gathered and, as a general rule, provide an opportunity of being heard before determining income or loss, with a limited exception relieving the AO from issuing a separate show-cause notice if a earlier section 268(1) notice has been issued.
Act Rules Income Tax
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Summary processing of returns permits correction of arithmetical errors and apparent incorrect claims with adjustment of tax or refund.
Clause 270 authorises summary processing of returns to correct arithmetical errors and certain incorrect claims apparent from any information in the return, compute tax/interest/fee and adjust payments to determine payable or refundable amounts, subject to prior intimation to the assessee and an opportunity to respond; strict post year end timelines and special sequencing protect exempt and non profit entities, and the Act adds an express ground permitting prescribed cross year consistency checks.
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Tax on updated return requires pre-filing payment of tax, interest and additional levy, increasing compliance obligations.
Clause 267 requires that where an updated return under section 263(6) results in tax payable the assessee must, before furnishing the updated return, pay the tax, interest, any fee for delay/default and an additional income-tax computed on the aggregate of tax and interest; proof of payment must accompany the updated return. Specified credits, prior payments and interest already paid are to be set off in computing the net liability.
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Mandatory filing duties and updated return limits reshape corrective filing eligibility and compliance obligations.
Section 263 imposes mandatory filing duties for enumerated classes, prescribes due dates by category, empowers the Board to prescribe forms and particulars, and allows the Central Government to exempt classes. It distinguishes late returns, revised returns (both within nine months or before assessment completion), and an updated return remedy within a multi year window that is barred where updated filings would claim losses, reduce tax, produce refunds, duplicate updates, or where assessments, possession of information, international or internal information exchange, prosecutions, searches, surveys, requisitions or specified notices have intervened. Assessing Officers may treat unrectified defective returns as invalid after a short cure period.
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Digital evidence parity: seized electronic backups treated as books of account, extending tax search powers into virtual spaces.
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Act Rules Income Tax
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Power to call for information: tax authority may require relevant records for verification, subject to defined scope of proceeding.
A prescribed income tax authority may issue notices requiring persons to furnish information for verification of information in the authority's possession that is useful for, or relevant to, any inquiry or proceeding under the Act; the authority may specify form, manner and time for compliance and may process and utilise such information under a scheme notified under section 260. The enacted Section 259 adds subsection (3) linking the term "proceeding" to the meaning in section 253, clarifying the definitional scope of notices.
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Judicial character of tax proceedings clarified; civil court deeming limited and excludes a specified statutory chapter.
Section 257 deems proceedings before income-tax authorities to be judicial proceedings for specified provisions of the Bharatiya Nyaya Sanhita, 2023, and deems income-tax authorities to be Civil Courts for the purposes of section 215 of the Bharatiya Nagarik Suraksha Sanhita, 2023, but expressly excludes application of that deeming for the purposes of Chapter XXVIII of the Bharatiya Nagarik Suraksha Sanhita, 2023.
Act Rules Income Tax
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Enquiry powers: specified senior income-tax officers authorised to exercise Assessing Officer powers for statutory enquiries.
Section 256 vests enquiry authority in specifically listed senior officers - Principal Director General/Director General, Principal Director/Director, Principal Chief Commissioner/Chief Commissioner, Principal Commissioner/Commissioner and Joint Commissioner - and grants them Assessing Officer-like powers to make enquiries under the Act, including summons and document requisition, while the clause contains no procedural provisos or territorial limits and therefore relies on other statutory or subordinate provisions for operational safeguards and delegation mechanics.
Act Rules Income Tax
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Survey powers over electronic records and premises enable inspection, technical access and limited impoundment for tax compliance verification.
Survey powers authorise entry into premises where business, profession or charitable activities are carried on to inspect books, documents, electronic media and computer systems and to require necessary technical and other assistance including access codes; officers may verify assets and stock, make extracts or copies, record statements on oath, prepare inventories and impound or retain records or computer systems after recording reasons, with retention beyond the initial statutory period requiring prior approval and temporal limits on entry applicable to business and other premises.
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Retention limits for seized material clarified, with supervised copying rights and an administrative remedy to challenge extensions.
Clause 251 requires transfer of seized assets and material to the territorial Assessing Officer where the seizing authorised officer lacks jurisdiction, mandates supervised opportunity for the person to make copies or extracts, prescribes statutory retention limits tied to assessment or recomputation events with written reasons and approving authority approval for extensions, and preserves a right to apply to the Board against approvals for extended retention.
Act Rules Income Tax
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Application of seized assets: assets may be applied to recover tax liabilities, subject to explanation-based release and distraint.
The provision authorises recovery from assets seized or requisitioned under search or requisition to satisfy tax liabilities, including penalty and interest (excluding advance tax), aggregating liabilities arising before, during assessments consequent to the search, and those connected to settlement proceedings; the enacted text expressly includes block-period assessments under Part B of Chapter XVI. Release within the statutory period requires the Assessing Officer to be satisfied on the basis of the explanation furnished about nature and source, recovery of existing liabilities, and prior commissioner-level approval, while non-monetary assets are deemed under distraint and may be realised as prescribed.

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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