Central Board of Direct Taxes (CBDT), through Notification No. 126/2025 dated 28th July 2025, has introduced the Income-tax (Twentieth Amendment) Rules, 2025, effective immediately upon publication in the Official Gazette. The amendment modifies Rule 21AK of the Income-tax Rules, 1962, expanding the scope of relevant financial instruments and entities. Specifically, sub-rule (1)(b) now includes “over-the-counter derivatives” alongside “offshore derivative instruments,” and extends applicability to Foreign Portfolio Investors (FPIs) operating as units within International Financial Services Centres (IFSCs). Sub-rule (2) has also been updated to recognize FPIs in addition to offshore banking units. Further, the Explanation section has undergone structural revisions to improve clarity and consistency, including the formal addition of a definition for “Foreign Portfolio Investor.” This definition refers to entities registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019. The amendment aims to reflect recent regulatory developments and operational realities within IFSCs and streamline tax-related provisions for FPIs.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
Notification No. 126/2025-Income Tax | Dated:28th July, 2025
G.S.R. 503(E).— In exercise of the powers conferred by section 295 read with clause (4E) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
1. (1) These rules may be called the Income-tax (Twentieth Amendment) Rules, 2025.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962, in rule 21AK, ––
(a) in sub-rule (1), clause (b),-
(i) in the opening portion, after the words “offshore derivative instruments”, the words “or over-the-counter derivatives” shall be inserted;
(ii) in sub-clause (i), after the words “by the International Financial Services Centres Authority”, the words “or any Foreign Portfolio Investor being a unit of an International Financial Services Centre” shall be inserted;
(b) in sub-rule (2), after the words “offshore banking unit”, the words “or the Foreign Portfolio Investor” shall be inserted.
(c) in the Explanation, –
(i) in clause (v), for the words “a purchaser and a seller; and”, the words “a purchaser and a seller;” shall be substituted;
(ii) in clause (vi), the word “and” shall be inserted at the end; and
(iii) after clause (vi,) the following clause shall be inserted, namely:-
‘(vii), “Foreign Portfolio Investor” means a person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).’.
[F. No. 370142/26/2025-TPL]
SAMUEL PITTA, Dy. Secy.
Note: –The Income-tax Rules, 1962 were published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i) vide number S.O. 969 (E), dated the 26th March, 1962 and was last amended vide number G.S.R. 322 (E), dated the 19.05.2025.
