Rule 126 of the Draft Income-tax Rules, 2026 prescribes specific conditions and permitted activities for a Finance Company located in an International Financial Services Centre (IFSC) for the purposes of section 177. The rule restricts such Finance Companies to carrying out only specified financial activities, including lending in the form of loans, commitments, guarantees, credit enhancement, securitisation and financial leasing; factoring and forfaiting of receivables; and functions of a Global or Regional Corporate Treasury Centre. Treasury functions may include borrowings, lending, currency or commodity risk hedging, investments, cash management, structured credit, intra-group financing, financial budgeting, and similar treasury-related services. Additionally, where the Finance Company is a borrower in respect of any debt issued by a non-resident, the interest payment on such debt must be made in foreign currency. The rule also clarifies that the term “Finance Company” shall have the meaning assigned under the International Financial Services Centres Authority (Finance Company) Regulations, 2021 framed under the International Financial Services Centres Authority Act, 2019, and that “International Financial Services Centre” shall have the meaning assigned under the Special Economic Zones Act, 2005. The provision thus delineates the operational scope and compliance conditions for IFSC-based Finance Companies seeking benefits under section 177.
Extract of Rule No. 126 of Draft Income-tax Rules, 2026
Rule 126
Conditions and activities for the Finance Company located in any International Financial Services Centre for section 177.
(1) For the purposes of section 177(7)(b), the Finance Company located in any International Financial Services Centre shall only carry out one or more of the following activities, namely: —
i) lending in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease;
(ii) factoring and forfaiting of receivables; or
(iii) functions of Global or Regional Corporate Treasury Centre such as borrowings, lending, hedging of currency or commodity risk or investments, cash management, structured credit, intra group financing, financial budgeting and similar other such treasury services and activities.
(2) The interest being paid by such Finance Company, being the borrower, in respect of any debt issued by a non-resident, shall be in foreign currency.
(3) For the purposes of this rule, —
(a) “Finance Company” means a finance company as defined in regulation 2(1)(e) of the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019); and
(b) “International Financial Services Centre” shall have the meaning as assigned to it in section 2(q) of the Special Economic Zones Act, 2005 (28 of 2005).
