Exempt Income of Non-Residents: FM proposes Section 10 Amendment in Union Budget 2025

The Union Budget 2025-26 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today. One of the more intriguing changes proposed by the Union Budget is the possible exemption of tax on the income gained by non-residents by means of amendment of Section 10 of the Income Tax Act, 1961. The move is expected to bolster investment and nudge movement within the International Financial Services Centre (IFSC).

Finance Minister Nirmala Sitharaman in her key-note address stated:

"To further incentivize operations from the IFSC, we propose to amend clause (4E) of Section 10 to provide that the income of a non-resident on account of transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives, or distribution of income on offshore derivative instruments, entered into with Foreign Portfolio Investors being an IFSC unit, shall also not be included in the total income, subject to certain conditions as may be prescribed,"

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The intent behind the proposed amendment is to remove the liability on non-residents to render income tax on income arising from offshore derivative instruments, non-deliverable forward contracts, and similar financial transactions conducted through offshore banking units in the IFSC.

Much like most of the proposed amendments in the Finance Bill, 2025, the changes regarding Section 10 of the Act are slated to come into effect from April 1, 2026 and shall apply to the Assessment Year 2026-27 and subsequent years.

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A word of caution for taxpayers, because the exemption is touted to apply only to transactions involving Foreign Portfolio Investors (FPIs) operating within the IFSC​. The core idea behind the inclusion of global-oriented changes is part of India’s gameplan to achieve the vision set by Viksit Bharat@2047.

The new Finance Bill, 2025 yet to receive parliamentary assent also seeks to extend the deadline for various tax exemptions under Section 10 of the Income Tax Act, 1961 including extending the deadline for eligible investment funds and certain sovereign wealth funds investing in infrastructure from March 31, 2025 to March 31, 2030.

To Read the full text of the Order CLICK HERE

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