NEW DELHI, FEB 01, 2023: IN order to further incentivize operations from units located in International Financial Services Centre (IFSC) under the Income tax Act to make it a global hub of financial services sector, the FM proposed to amend clause (4E) of section 10 of the Act, to provide exemption to any income distributed on the offshore derivative instruments, entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be prescribed. The FM also proposed that such exempted income shall include only that amount which has been charged to tax in the hands of the IFSC Banking Unit u/s 115AD.

Currently, income of non-residents on transfer of Offshore Derivative Instruments (ODI) entered into with IFSC Banking unit was exempt u/s 10 (4E) of the Act. Under the ODI contract, the IFSC Banking Unit (IBU) makes the investments in permissible Indian Securities. Income earned by the IBU on such investments is taxed as capital gains, interest, dividend under section 115AD of the Act. After the payment of tax, the IBU passes such income to the ODI holders. Presently, the exemption is provided only on the transfer of ODIs and not on the distribution of income to the non-resident ODI holders, hence this distributed income is taxed twice in India i.e. first when received by the IBU and second, when the same income is distributed to non-resident ODI holders. Therefore, the FM proposes this amendment in order to remove the double taxation.

This amendment will take effect from the 1st day of April, 2024 and accordingly apply to assessment year 2024-25 and subsequent assessment years.