Draft Income Tax Rule 28: Computation of exempt income in the nature of capital gains in connection with relocation of original fund etc
Rule 285 of the Draft Income-tax Rules, 2026 provides the method for computing exempt income in the nature of capital gains for specified funds in connection with relocation of an original fund under Schedule VI (Table: Sl. No. 10). The rule states that capital gains arising to a specified fund from the transfer of shares of a company resident in India, received during relocation from the original fund or its wholly owned special purpose vehicle, may qualify for exemption to the extent attributable to units held by non-resident investors, excluding permanent establishments of non-residents in India. The exempt amount is calculated using the formula A×B/C, where A represents capital gains arising from such share transfers that would not have been taxable had relocation not occurred, B represents the aggregate daily assets under management attributable to non-resident unit holders during the relevant holding period, and C represents the aggregate daily total assets under management of the specified fund during the same period. The exemption is available only if the specified fund files an annual statement of exempt income in Form No. 178 electronically under digital signature on or before the due date. The statement must also be certified by an accountant, who must submit a certificate in Form No. 179 before the specified date. If Form No. 178 is not filed, the exempt income will be treated as nil. The rule also defines key terms such as assets under management, due date, original fund, relocation, resultant fund, securities, specified fund, unit, permanent establishment, and specified date for certification.
Extract of Rule No. 285 of Draft Income-tax Rules, 2026
Rule 285
Computation of exempt income in the nature of capital gains in connection with relocation of original fund etc.
(1) For the purpose of Schedule VI [Table: Sl. No. 10], income of the nature of capital gains, arising or received by a specified fund, which is attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) in such specified fund shall be computed as under: —
(a) where the specified fund files Form No. 178 in accordance with sub-rule (2), the income exempt under Schedule VI (Table: Sl. No. 10) = [A×B/C], where, —
A = income of the nature of capital gains, arising or received by a specified fund, which is on account of transfer of shares of a company resident in India, by the specified fund and where such shares were received by the specified fund, being resultant fund, in relocation from the original fund, or from its wholly owned special purpose vehicle, and where such capital gains would not be chargeable to tax if the relocation had not taken place;
B = aggregate of daily ‘assets under management’ of the specified fund which are held by non-resident unit holders (not being the permanent establishment of a non-resident in India), from the date of acquisition of the share of a company resident in India by the specified fund to the date of transfer of such share;
C = aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the share of a company resident in India by the specified fund to the date of transfer of such share;
(b) where no Form No. 178 is filed by the specified fund, the exempt income shall be NIL.
(2) The specified fund shall furnish an annual statement of exempt income in Form No. 178 electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.
(3) It shall get the annual statement, referred to in sub-rule (2), certified by an accountant before the specified date and such accountant shall furnish by that date the certificate in Form No. 179 electronically under digital signature, which is duly verified in the manner indicated therein.
(4) In this rule, the expressions, —
(a) “assets under management” means the closing balance of the value of assets or investments of the specified fund as on a particular date;
(b) “due date” shall have the meaning assigned to it in section 263(1)(c);
(c) “original fund”, “relocation”, “resultant fund”, “securities”, “specified fund” and “unit” shall have the meanings respectively assigned to them in Schedule VI (Notes);
(d) “permanent establishment” shall have the meaning assigned to it in section 173(c);
(e) “specified date” in relation to the certification of the annual statement in Form No. 178, means the date one month prior to the due date;
