CBDT expands IFSC Benefits to FPIs and OTC Derivatives under Income Tax Rules [Read Notification]

The notification makes specific changes to Rule 21AK of the Income-tax Rules, which deals with the taxation of “specified funds” located in IFSCs. These are funds that receive certain tax exemptions and benefits under Indian tax law.

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The key changes introduced are:

1. Inclusion of Over-the-Counter (OTC) Derivatives:

The rule now includes OTC derivatives in addition to offshore derivative instruments. This means that specified funds dealing in OTC derivatives can now also enjoy the same tax benefits as those dealing in offshore derivatives.

2. Foreign Portfolio Investors (FPIs) Recognized:

The amendment adds Foreign Portfolio Investors (FPIs) as eligible entities, if they are operating as a unit within an IFSC. This change allows FPIs registered in IFSCs to qualify for the same tax benefits under Rule 21AK.

3. Expanded Definitions for Clarity:

A new clause defines "Foreign Portfolio Investor" as a person registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019. Minor textual updates and grammatical corrections were also made for better legal clarity.

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Textual and Grammatical Corrections

• In addition to the substantive changes, the amendment also makes minor textual corrections for legal clarity:
• In clause (v) of the Explanation, the conjunction “and” has been removed for correct punctuation.
• In clause (vi), the word “and” has been added at the end to properly connect it with the newly inserted clause (vii).

These edits improve the grammatical flow and alignment with standard legislative drafting formats.

These amendments came into effect on July 28, 2025, the date of their publication in the Official Gazette.

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