The Finance Act 2025 introduces several amendments to the Income-tax Act, 1961. Key changes include an expanded definition of “capital asset” to encompass securities held by specific investment funds under SEBI or IFSCA regulations. Provisions related to fund manager relocation to India are eased by omitting “indirectly” from the 5% investment limit condition. The Central Government’s power to modify conditions for eligible investment funds and managers in IFSCs is restored and extended until 2030. Exemptions for specified funds and income from OTC and offshore derivatives are clarified, with a focus on IFSC-related transactions. Life insurance policy exemptions are refined, replacing “intermediary” with “office” for IFSC insurance entities. The Act shifts search case assessments from “total income” to “undisclosed income,” streamlining the process. Equalisation Levy on online advertisements is phased out from April 1, 2025. These amendments reflect a move towards clarity, reduced compliance burdens, and a focus on undisclosed income assessment.
Changes in the Finance Bil 2025 as passed by Lok Sabha and notified in the Official Gazette on 29.3.2025 (Now Finance Act, 2025)
| Definition of
Capital Assets [Section 2(14)]
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“capital asset” means
(b) any securities held by a Foreign Institutional Investor or held by an investment fund specified in section 224(10)(a) which has invested in such securities as per the regulations made under the Securities and Exchange Board of India Act, 1992.
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“(b) any securities held by-
(i) a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992; or (ii)an investment fund specified in clause (a) of Explanation 1 to section 115UB which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 or under the International Financial Services Centres Authority Act, 2019;” |
| VTPA Comments
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– Amendment further expands the definition of “capital asset” to include securities held by a Category I or Category II Alternative Investment Fund, where such investment has been made in accordance with either SEBI regulations or IFSCA regulations. | |
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| Certain activities not to constitute business connection in India or deemed to be resident of India solely due to Fund manager location
[Section |
Section 9A(3)(c) of the Income- tax Act, 1961 inter alia provides that the aggregate participation or investment by a person resident in India, in the eligible investment fund, directly or indirectly, shall not exceed five percent of the corpus of such fund. |
The word or indirectly” is omitted. |
| VTPA
Comments |
– It has been proposed that the indirect participation or investment by a person resident in India, in the eligible investment fund, shall not be considered for the five percent condition in section 9A This shall reduce compliance burden and enable relocation of fund managers of offshore funds to India. | |
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| Power of central government to relax or modify conditions
[Section 9A(8A)] |
Section 9A(8A) inter alia provides that the Central Government may relax or modify any one or more of the 13 conditions specified in section 9A (3) for eligible investment fund and 4 conditions in section 9A(4) for eligible fund manager, if such fund manager is located in an IFSC and has commenced its operation on or before 31.3.2024.
In the Finance Bill, 2025, it was proposed that the conditions specified in section 9A(3)(c) shall not be modified by the Central Government. |
The power of Central Government has been restored. Further the year 2024 is substituted by 2030. |
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| Exempt income of Specified Fund
[Section 10(4D)]
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Clause (aa) of explanation 1 Investment division of offshore banking units means investment division of a banking unit of a non-resident located in IFSC as referred in section 80LA(1A) and which has commenced operation on or before 31.3.2025.
Clause (c) of explanation 1 specified fund includes, which has been granted a certificate as a retail scheme or an Exchange Traded Fund, and is regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019 and satisfies Such conditions, as may be |
(aa) year 2025 is substituted by year 2030.
The Finance Bill has removed the requirement to satisfy the prescribed conditions under Income-tax Act 1961. However, these specified funds need to fulfil the conditions prescribed for such schemes or funds under the IFSC (Fund Management) Regulations, 2022.
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| VTPA Comments
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– It has been provided that the exemption to a specified fund (which has been granted a certificate as a retail scheme or an Exchange Traded Fund) will be available if it satisfies the conditions laid down for such funds or schemes in the IFSCA regulations. | |
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| Exemption of
income from and offshore |
Section provides an exemption to the following income accrued or arising to or received by a non-resident subject to the fulfilment of certain conditions on | Exemptions benefit has been extended to transactions made by non-residents with Foreign Portfolio Investors (FPIs) that are units in an IFSC. |
| Any Income accrued or arisen to or received by non-resident as a result of …
[Section 10(4E)]
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(i) Transfer of non-deliverable forward contracts, offshore derivative instruments, or over the counter (OTC) derivatives; and
(ii) Distribution of income on offshore derivative instruments. |
Further, it also proposes to extend the exemption under clause (ii) to the distribution of income on Over the Counter (OTC) derivatives, where such contracts are entered into by a non-resident with either Overseas Banking Units or Foreign Portfolio Investors (FPIs) operating in an IFSC. |
| VTPA
Comments |
– Amendment to extend the exemption under section 10(4E) to the distribution of income on Over-the-Counter (OTC) derivatives, where such contracts are entered into by a non-resident with either Overseas Banking Units or Foreign Portfolio Investors (FPIs) operating in an IFSC. | |
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| Exempt any sum received under life insurance policy
[Section |
‘Provided that the denial of exemption of sum received under provisions of the fourth, fifth, sixth and seventh provisos shall not apply to any sum received––
(a) on the death of a person; or (b) under a life insurance policy issued by the International Financial Services Centre Explanation. For the purposes of this proviso, “International Financial Services Centre insurance (1) of regulation 3 of the |
(b) word intermediary is omitted Word intermediary is omitted, and clause (s) is substituted by clause (k) |
| VTPA
Comments |
– The insurance policies are to be issued by IFSC insurance offices. Therefore, the reference to IFSC insurance intermediary is being replaced with the correct reference (IFSC insurance offices). | |
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| Special provisions for computing income of providing technology and services for electronics manufacturing facility by nonresidents
[Section 44BBD] |
It provides that a sum equal to 25% of the aggregate of the specified amounts shall be deemed to be the profits and gains of such business of the non-resident assessee. | A new proviso is inserted under 44BBD (2), which provides that specific provision of Section 44DA related to permanent establishment and Section 115A related to taxation of royalty and fee for technical services shall not apply on the income included in the proposed presumptive taxation scheme under section 44BBD. |
| VTPA Comments | – If the permanent establishment (PE) of non-residents exists in India then the royalty or FTS income connected to it, shall be taxable under the head “Business or Profession” as per Section 44DA.
– If the PE does not exist, then the royalty or FTS income shall be taxable at the rate specified under Section 115A, subject to provisions of DTAA. |
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| Transactions not regarded as Transfer
[Section |
In the Explanation (c) the definition of ‘resultant fund’ means fund established or incorporated in the form of trust or a company or a limited liability partnership. | The definition ‘resultant fund’ has been expanded to include Retail Schemes and Exchange Traded Funds (ETFs) that are regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, provided they also meet the conditions specified under section 10(4D) of the Income-tax Act, 1961. |
| VTPA
Comments |
– The amendment allows the relocation of an original fund to a resultant fund, such as a Retail Scheme or an Exchange Traded Fund (ETF), to be treated as a tax-neutral transaction for the shareholder or unit holder in the original fund, subject to specified conditions. | |
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| Withdrawal of Equalisation levy
[Section 10(50)] |
Chapter VIII of the Finance Act 2016 introduced the Equalisation Levy in respect of online advertisement services rendered to a specified person by a non-resident.The Finance Act 2020 expanded the scope of equalisation levy to the e-commerce supply of goods or services to a specified person by an e-commerce operator. |
(a) Amendments have been made to Sections 163 and 165 of the Finance Act 2016 to provide that the no equalisation levy shall apply to any consideration in respect of online advertisement services received or receivable by a nonresident on or after 01-04-2025. |
| However, the Finance (No.2) Act 2024 removed the equalisation levy on e-commerce supplies of goods or services with effect from 01-082024. | (b) A sunset date has been inserted in Section 10(50) of Income Tax Act to provide that this provision shall not apply from the assessment year 2026-27. |
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| Changes in Chapter XIV-B (Sections 158B to 158BI) which provides the special procedure for assessment in search cases (Block Assessment) | ||
| VTPA Comments | – The concept of assessment of total income has been replaced with the assessment of undisclosed income in Search cases. This reflects a paradigm shift where the main objective of a search or requisition is to identify income that has not been disclosed. The changes to Chapter XIV-B aim to focus only on assessing undisclosed income. | |
| Assessment of Income as a result of search [Section 158BA]
|
In the marginal heading and in sub-section (1) and sub-section (7) of section 158BA the word ‘total income’ is stated. | The word ‘total income’ has been replaced with ‘total undisclosed income’ in the marginal heading and in sub-section (1) and sub-section (7) of section 158BA. |
| In sub section (4) for the words “pending” | for the word “pending”, the words “required to be made” shall be substituted and shall be deemed to have been substituted | |
| In sub-section (5) for the words “the assessment or reassessment relating to any assessment year” | the words “the assessment or reassessment or recomputation or reference or order relating to any assessment year” shall be substituted and shall be deemed to have been substituted | |
| In sub-section (2) and (6) the words, brackets, figures and letters “forming part of the total income” | Shall be omitted and shall be deemed to have been omitted | |
| In sub-section (3)
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the following sub-section (3) shall be substituted and shall be deemed to have been substituted, namely “(3) Where any income required to be determined as a result of search or requisition of books of account or other documents and any other material or information as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter, or determined on the basis of entries relating to such income or transactions as recorded in books of account and other documents maintained in the normal course on or before the date of the execution of the last of the authorisations, relates to any international transaction or specified domestic transaction referred to in section 92CA, pertaining to the period beginning from the 1st day of April of the previous year in which last of the authorisations was executed and ending with the date on which last of the authorisations was executed, such income shall not be considered for the purposes of determining the total income of the block period and such income shall be considered in the assessment made under the other provisions of this Act.”; |
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| VTPA
Comments
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– The word ‘total income’ has been replaced with ‘total undisclosed | |
| income’ in the marginal heading and in sub-section (1) and sub-section (7) of section 158BA. The total undisclosed income referred to in section 158BA(1) for the block period shall be the aggregate of the following:
a) Undisclosed income declared in the return furnished under section 158BC; b) Undisclosed income determined by the Assessing Officer under subsection (2). The tax referred to in section 158BA(7) shall be charged on the total undisclosed income determined in the manner specified in section 158BB(1). The total undisclosed income of the block period, determined under section 158BC, shall be chargeable to tax at the rate of sixty per cent under section 113 of the Act. |
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| Computation of total income of block period | In the marginal heading the words
“Total income”, |
In place of word “total income” the words “total undisclosed income” shall be substituted and shall be deemed to have been substituted.
The total undisclosed income |
| [Section
158BB] |
In section 158BA, Sub section (l)
The total undisclosed income of the block period shall be substituted b) undisclosed income determined by the Assessing Officer under sub- section (2)…. |
referred to in section 158BA (1) for the block period shall be the aggregate of the following:
a) Undisclosed income declared in the return furnished under section 158BC. b) Undisclosed income determined by the Assessing Officer under sub-section (2). (lA) The following income shall not be included in the total undisclosed income of the block period, namely: (a) the total income determined under subsection (1) of section 143 or assessed under section 143 or section 144 or section 147 or b) Total income declared in the return filed under section 139 or in response to a notice under section 142(1), prior to the date of the search or requisition, and not covered under clause (a); c) Income computed by the b) Total income referred to in section 115A (5), section 115G, or section 194P (1). |
| VTPA
Comments |
– Section 158BB has been amended to provide a clear distinction between disclosed and undisclosed income and to compute the assessment of total undisclosed income. | |
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| Computation of total income of block period [Section 158BB] | In the marginal heading the words “Total income”, In section 158BA, Sub section (l) The total undisclosed income of the block period shall be substituted | In place of word “total income” the words “total undisclosed income” shall be substituted and shall be deemed to have been substituted. The total undisclosed income referred to in section 158BA (1) for the block period shall be the aggregate of the following:a) Undisclosed income declared in the return furnished under section 158BC. b) Undisclosed income determined by the Assessing Officer under sub-section (2). |
| (b) undisclosed income determined by the Assessing Officer under sub-section (2)…. | (lA) The following income shall not be included in the total undisclosed income of the block period, namely: (a) the total income determined under subsection (1) of section 143 or assessed under section 143 or section 144 or section 147 or section 153A or section l 53C or assessed earlier under clause (c) of sub-section (l) of section 158BC or sub-section (4) of section 245, prior to the date of initiation of the search or the date of requisition, in respect of any of the previous year comprising the block period. b) Total income declared in the return filed under section 139 or in response to a notice under section 142(1), prior to the date of the search or requisition, and not covered under clause (a); c) Income computed by the assessee for the specified period based on books of account maintained in the normal course. d) Total income referred to in section 115A (5), section 115G, or section 194P (1). | |
| VTPA Comments | – Section 158BB has been amended to provide a clear distinction between disclosed and undisclosed income and to compute the assessment of total undisclosed income. | |
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| Furnishing of return under search cases with effect from 1.9.2024
[Section 158BC] |
In sub-section (1), clause (a) (i) the word “total income, including the”(ii) After fourth proviso, new proviso to be inserted Clause (b) the words “total income” Clause (c) the words “total income” and the second proviso |
(i) shall be omitted and shall be deemed to be omitted
(ii) below proviso be inserted: The time limit for furnishing of return can be extended by 30 days if all the following conditions are met: i. The previous year immediately precedes the year in which the search or requisition was made, and the due date for furnishing return for that year had not expired before the search or requisition. ii. The assessee was liable for audit under section 44AB for that previous year. iii. The accounts of that year (maintained in the normal course) were not audited on the date of issuance of the notice; and The assessee makes a written request for extension of time for furnishing the block return to get such accounts audited. The words “total income” is substituted by words “total |
| VTPA Comments | – Taxpayer shall furnish the block return in pursuance of a notice under section 158BC within the time specified in the notice, which shall not exceed 60 days. However, on fulfilling of certain conditions mentioned above, time limit can be extended by 30 days. | |
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| Undisclosed income of any other person [Section 158BD] | Where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or ‘relates to any person (herein referred to as the “other person”), other than the person (herein referred to as the “specified person” for the purposes of this section) with respect to whom search was initiated under section 132. or requisition was made under section 132, then any money, bullion, jewellery, virtual digital asset or other valuable article or thing or any books of account or other documents seized or requisitioned or any other material or information relating to the aforesaid undisclosed income shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 115BC against such other person and the provisions of this Chapter shall apply accordingly: | The block period has been clearly defined in respect of another person covered under section 158BD. There are two cases: a) Where there is one specified person relevant to such other person, the block period for such other person shall be the same as that for the specified person. b) Where there is more than one specified person relevant to such other person, the block period shall be the same as that of the specified person whose block period ends on the later date. Provided that in case of such other person, for the purpose of abatement under section 158BA(2) and 158BA(3), the reference to the date of initiation of search or requisition shall mean the date on which money, bullion, jewellery, virtual digital assets, or other valuable items, or books of account, documents, or other materials relating to undisclosed income were received by the Assessing Officer having jurisdiction over such person. |
| VTPA Comments | – The amendment states that the time limit of assessment in case of a person other than the searched person shall commence when the jurisdictional Assessing Officer (AO) of such other person receives the requisite information / material, etc., from the AO of the searched person. Further, in case there is more than one searched person, then the last date when the jurisdictional AO receives such information / material from the AO of the last searched person. | |
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| Time limit for completing the assessment
[Section 158BE] |
In sub section (1) (i) for the word “month”
(iii) in the proviso for the words “total income” (iv) after the proviso In sub section (4) clause (i) be substituted |
The word “quarter” shall be substituted.
The words “total undisclosed income” to be substituted” New proviso as below be inserted: ‘Provided further that in a case where in pursuance to fifth proviso to clause (a) of subsection (1) of section 158BC, the time allowed under the said clause for furnishing return is extended by a further period of thirty days, the provisions of this sub-section shall have effect, as if for the words. “twelve months”, the words “thirteen months” had been substituted. (i) the period commencing on the date on which stay on assessment proceedings was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal commissioner or commissioner or |
| VTPA Comments | – The time-limit for completion of block assessment is twelve months from the end of the quarter in which the last of the authorizations for search or requisition has been executed. However, in case where the time limit has been extended by 30 days under section 158BC on fulfilling of certain conditions, the time limit for completion of block assessment is extended to thirteen months. | |
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| Levy of interest and penalty in certain cases
[Section 158BFA]
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In sub section (1) for the words “total income”.
In sub section (4) for clause (ii) be substituted.
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The words “total undisclosed income” to be substituted.
“(ii) the period commencing on the date on which stay on the proceeding under sub-section (2) was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal commissioner or commissioner”. |
| Chapter not to apply in certain circumstances [Section158BI] |
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The said section is omitted and shall be deemed to be omitted. |
| VTPA
Comments |
– The assessment of total income under block assessment has been replaced with the assessment of total undisclosed income.
– The pending proceedings of any year comprised in the block period where the AO finds any evidence as a result of search or requisition as well as any other material or information as is available with him or comes to his notice is abated and AO shall be at liberty to compute undisclosed income of abated assessment along with the block assessment. – Regular income will continue to be determined based on entries or transactions recorded in the books of account or documents maintained in the normal course before the initiation of the search or requisition. – The changes to Chapter XIV-B aim to focus only on assessing undisclosed income and place trust in the taxpayer to disclose regular income in the block income tax return. – The block assessment provides an approach to computing the total income and undisclosed income of the block period. In other words, it splits total income into undisclosed income and disclosed income. Undisclosed income is taxed under Section 113, while disclosed income is assessed separately under other provisions of the Act. |
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