Draft Income Tax Rule 140: Determination of income of a specified fund attributable to units held by non-residents under section 210(2)

Draft Income Tax Rule 140 – Determination of income of a specified fund attributable to units held by non-residents under section 210(2)

Draft Rule 140 of the Income-tax Rules, 2026 provides the mechanism for determining income of a specified fund attributable to units held by non-residents (other than a permanent establishment in India) for the purposes of section 210(2). In respect of short-term or long-term capital gains arising from transfer of securities referred to in section 210(1) (Table Sl. Nos. 2, 3, 4 and 5), the attributable income is computed using the formula A = B × C, where B represents income from transfer of the security and C is the ratio of the aggregate of daily assets under management (AUM) held by non-resident unit holders to the aggregate daily total AUM of the specified fund, calculated from the date of acquisition to the date of transfer of the security. For income received in respect of securities under section 210(1) (Table Sl. No. 1), the formula X = Y × Z applies, where Y is income received and Z is the ratio of AUM held by non-resident unit holders to total AUM as on the date of receipt of such income. The rule mandates furnishing an annual statement in Form No. 69 by the due date under section 263(1)(c), failing which concessional tax rates under section 210 will not apply. “Assets under management” means the closing balance of fund assets on a particular date, and relevant expressions adopt meanings assigned in the Act and Schedule VI.

Extract of Rule No. 140 of Draft Income-tax Rules, 2026

Rule 140

Determination of income of a specified fund attributable to units held by non-residents under section 210(2).

(1) For the purposes of section 210(2), the income of a specified fund by way of short-term or long-term capital gains, referred to in section 210(1) [Table: Sl. nos. 2, 3, 4 and 5], that is attributable to the units held by non-resident (other than the permanent establishment of a non­resident in India) shall be calculated using the following formula, namely:—

A = B × C

Where,

A = income attributable to the units held by non-resident (not being the permanent establishment of a non-resident in India)

B = income arising from transfer of the security

C = ratio of the aggregate of daily ‘assets under management’ of the specified fund held by non- resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the security to the date of transfer of such security.

(2) For the purposes of section 210(2), the income of a specified fund by way of income received in respect of securities, referred to in section 210(1)[Table: Sl. no. 1], that is attributable to the units held by non-resident (other than the permanent establishment of a non­resident in India) shall be calculated using the following formula, namely:—

X = Y × Z

Where,

X = income attributable to the units held by non-resident (not being the permanent establishment of a non-resident in India)

Y = income received in respect of securities

Z = ratio of the ‘assets under management’ in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total ‘asset under management’ of the specified fund, as on the date of receipt of such income.

(3) The specified fund shall furnish an annual statement of income eligible for concessional taxation in

Form No. 69, on or before the due date specified under section 263(1)(c) of the Act.

(4) The income of a specified fund referred to in section 210(1), attributable to the units held by a non-resident (other than the permanent establishment of a non-resident in India), shall not be eligible for tax rates specified in section 210 unless such fund complies with sub-rule (3).

(5) For the purpose of 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) “permanent establishment” shall have the same meaning as assigned to it in section 173(c);

(c) “securities” shall have the same meaning as assigned to it in Schedule VI [Note 1(e)];

(d) “specified fund” shall have the same meaning as assigned to it in Schedule VI [Note 1(g)(i)]; and

(e) “units” shall have the same meaning as assigned to it in Schedule VI [Note 1(j)]