Introduction: The Ministry of Finance, through the Central Board of Direct Taxes, has issued a significant notification under clause (4G) of section 10 of the Income Tax Act, 1961. Dated January 4, 2024, Notification S.O. 66(E) focuses on the activity of investment in a financial product by non-residents. This investment is facilitated through a contract with a capital market intermediary, specifically, a Unit of an International Financial Services Centre (IFSC). The notification outlines the conditions under which such investments will be recognized, especially when the income is received in the non-resident’s account with the Offshore Banking Unit of the IFSC, as mentioned in section 80LA.
Detailed Analysis:
1. Definition Clarifications:
- Capital Market Intermediary: The notification refers to the definition provided in the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021.
- Financial Product: The meaning is aligned with sub-clause (d) of sub-section (1) of section 3 of the International Financial Services Centres Authority Act, 2019.
- International Financial Services Centre (IFSC): The term is in sync with clause (q) of section 2 of the Special Economic Zones Act, 2005.
- Unit: The notification adopts the definition from clause (zc) of section 2 of the Special Economic Zones Act, 2005.
2. Provisions of the Notification:
- The notification empowers non-residents to engage in investment activities through IFSC Units.
- The income generated from such investments must be received in the non-resident’s account with the Offshore Banking Unit of the respective IFSC.
- The significance lies in the alignment with section 80LA, emphasizing the tax implications associated with such income.
3. Implications for Non-Residents:
- Non-residents now have a structured avenue to invest in financial products through recognized IFSC Units.
- The Offshore Banking Unit of the IFSC becomes a pivotal element in facilitating and managing the income generated from these investments.
- This notification opens up new possibilities for non-resident investors, providing clarity on the regulatory framework and tax considerations.
Conclusion: The recent notification (No. 04/2024) under clause (4G) of section 10 of the Income Tax Act, 1961, is a progressive step toward facilitating non-resident investments. By streamlining the process through recognized IFSC Units and aligning with section 80LA, the government aims to attract foreign investment while ensuring clarity on tax implications. This move is expected to stimulate offshore banking activities and enhance the role of IFSCs in financial markets. Non-resident investors should carefully assess the opportunities and compliance requirements presented by this notification for informed decision-making.
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MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
Notification No. 04/2024-Income Tax | Dated: 04th January, 2024
S.O. 66(E).— In exercise of the powers conferred by sub-clause (ii) of clause (4G) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies activity of investment in a financial product by the non-resident, in accordance with a contract with such non-resident entered into by a capital market intermediary, being a Unit of an International Financial Services Centre, where the income from such investment is received in the account of the non-resident maintained with the Offshore Banking Unit of such International Financial Services Centre, as referred to in sub-section (1A) of section 80LA.
Explanation.—For the purposes of this notification,—
(i) “capital market intermediary” shall have the meaning as assigned to it in clause (ga) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021;
(ii) “financial product” shall have the meaning as assigned to it in sub-clause (d) of sub-section (1) of section 3 of International Financial Services Centres Authority Act, 2019 (50 of 2019);
(iii) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(iv) “Unit” shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
[Notification No. 04/2024 F. No. 370142/48/2023-TPL]
SOURABH JAIN, Under Secy. (TPL-I)
