The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, has issued Notification No. 126/2025 dated July 28, 2025, introducing the Income-tax (Twentieth Amendment) Rules, 2025, aimed at aligning the tax framework with evolving financial instruments and international investment structures.
The amendment modifies Rule 21AK of the Income-tax Rules, 1962, bringing key changes that expand the scope of exemption under clause (4E) of Section 10 of the Income-tax Act, 1961.
Key Highlights of the Amendment
- The term "over-the-counter derivatives" has been added alongside "offshore derivative instruments," thereby broadening the types of financial instruments eligible under the rule.
- The provision now covers any Foreign Portfolio Investor (FPI) that operates as a unit of an International Financial Services Centre (IFSC), expanding beyond just those notified by the International Financial Services Centres Authority (IFSCA).
- In the definition section, the term "Foreign Portfolio Investor" has been formally included and defined as any person registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019.
These amendments are seen as a strategic move to enhance the competitiveness of India's IFSCs by offering tax clarity and broader exemptions to international investors and institutions.
The new rules have come into immediate effect upon their publication in the Official Gazette.
Background
Rule 21AK was originally inserted to facilitate tax exemptions for certain income of non-residents investing in IFSCs. The latest amendments streamline the language and coverage to reflect India's growing role in global finance and the government's commitment to easing foreign investment procedures.
For investors and tax professionals, these updates offer enhanced certainty and new opportunities within India's evolving financial ecosystem.
Official copy of the notification has been attached
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