The Finance Bill, 2026 proposes rationalisation of the definition of “dividend” under section 2(40) of the Income-tax Act, 2025 to provide greater clarity and certainty for treasury centres, particularly those operating in International Financial Services Centres (IFSCs). Under the existing provision, advances or loans between group entities are excluded from the scope of dividend if one entity is a finance company or finance unit and the parent or principal entity is listed outside India. The amendment refines this exclusion by additionally requiring that the other group entity involved in the transaction must also be located in a notified jurisdiction outside India, and that the listing jurisdiction of the parent or principal entity be notified by the Central Government instead of the Board. To avoid interpretational ambiguity, the Bill also introduces explicit definitions of “group entity,” “parent entity,” and “principal entity,” aligned with IFSC regulatory frameworks. These changes take effect from 1 April 2026 and apply from tax year 2026–27 onwards.
Rationalisation of Certain Terms for Treasury Centres in IFSC
Exiting Clause (40) of the section 2 inter alia provides the definition of dividend. Sub-clause (v) to long line of clause (40) provides that dividend does not include any advance or loan between two group entities, where, __
(A) one of the group entities is a “Finance company” or a “Finance unit”; and
(B) the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the country or territory outside India as may be specified by the Board in this behalf;
2. In order to rationalise the said provision, it is proposed to amend the sub-clause (v) to long line of clause (40) to inter alia provide that, the other group entity to the transaction shall also be located in a country or territory outside India which shall be a notified jurisdiction, Also, the parent entity or the principal entity of such group is listed on stock exchange in a country or territory outside India; and for such purposes the country or territory outside India shall be specified by the Central Government, by notification in the Official Gazette.
3. For the purposes of aforementioned provisions, it is also proposed to define the following terms, namely: __
a. “group entity” shall have the same meaning as assigned to the expression “group entities” in clause (m) of sub-regulation (1) of regulation 2 of the International Financial Services Authority (Payment Services) Regulations, 2024 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);
b. “parent entity” or “principal entity” in relation to one or more other group entities, shall be an entity of which other group entities are subsidiary and such entity, __
(i) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiaries; or
(ii) controls the composition of the Board of Directors.
4. These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 27]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 27 of the Bill seeks to amend section 2 of the Income-tax Act, 2025 relating to definitions of the expressions.
Clause (32) of the said section provides for the definition of the expression “co-operative society”.
However, co-operative societies registered under the Multi-State Cooperative Societies Act, 2002, are not explicitly recognised in the definition presently provided in the said clause.
It is proposed to amend the said clause so as to include the co-operative societies registered under the Multi-State Co-operative Societies Act, 2002, within the scope of the definition of the expression “co-operative society”.
Clause (40) of the said section, inter alia, provides the definition of the expression “dividend”.
It is further proposed to omit sub-clause (f) of the said section so as to exclude consideration received on buyback of shares from the scope of dividend.
Sub-clause (v) to the first long line of the said clause provides that dividend does not include any advance or loan between two group entities, where,––
A. one of the group entities is a “Finance company” or a “Finance unit”; and
B. the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the country or territory outside India as may be specified by the Board in this behalf.
It is also proposed to substitute the said sub-clause, inter alia, so as to provide that the other group entity to the transaction is located in a country or territory outside India, the parent entity or the principal entity of such group is listed on stock exchange in a country or territory outside India, and for such purposes the country or territory outside India shall be specified by the Central Government, by notification in the Official Gazette.
It is also proposed to provide definition of the expressions “group entity”, “parent entity” and “principal entity”.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
27. Amendment of section 2.
In section 2 of the Income-tax Act, 2025 (hereafter in this Part referred of section 2. to as the Income-tax Act),––
(a) for clause (32), the following clause shall be substituted, namely:––
‘(32) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912, or the Multi-State Cooperative Societies Act, 2002, or under any other law in force in any State or Union territory for the registration of co-operative societies;’;
(b) in clause (40),––
(A) sub-clause (f) shall be omitted;
(B) in the first long line below sub-clause (f) as so omitted, for sub-clause (v), the following sub-clause shall be substituted, namely:––
‘(v) any advance or loan between two group entities, where,––
(A) one of the group entities is a “Finance Company” or a “Finance Unit”;
(B) the other group entity to the transaction is located in a country or territory outside India; and
(C) the parent entity or the principal entity of such group is listed on the stock exchange in a country or territory outside India,
for the purposes of items (B) and (C), the country or territory outside India shall be specified by the Central Government, by notification,’;
(b) in the second long line below sub-clause (v), in sub-clause (E), for item (II), the following items shall be substituted, namely:––
‘(II) “group entity” shall have the same meaning as assigned to the expression “group entities” in clause (m) of sub-regulation (1) of regulation 2 of the International Financial Services Authority (Payment Services) Regulations, 2024 made under the International Financial Services Centres Authority Act, 2019;
(III) “parent entity” or “principal entity” in relation to one or more other group entities, shall be an entity of which other group entities are subsidiary and such entity,–
(a) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiaries; or
(b) controls the composition of the Board of Directors;’.
