Income Tax Rules 2025: Changes to Regulations for IFSC Finance Companies



Quick Summary
The Central Board of Direct Taxes has introduced the Income-tax (Second Amendment) Rules, 2025, effective from January 27, 2025. These changes aim to clarify tax regulations for International Financial Services Centres (IFSCs). Key updates include recognising Venture Capital Funds in IFSCs as Category I Alternative Investment Funds and outlining specific permissible activities for Finance Companies operating within IFSCs, such as lending and treasury services. The rules also detail conditions for retail schemes and Exchange Traded Funds (ETFs) to qualify for tax exemptions.

In a significant move to streamline tax administration and align with global financial regulations, the Central Board of Direct Taxes (CBDT) issued Notification No. 10/2025 on January 27, 2025. This notification, officially titled the Income-tax (Second Amendment) Rules, 2025, introduces critical amendments to the Income-tax Rules, 1962.

IFSC Finance Company Tax Rules 2025 Changes

Key Highlights of the Notification

1. Venture Capital Fund Regulations

Under clause (23FB) of section 10 of the Income-tax Act, 1961, the rules now recognize Venture Capital Funds established in International Financial Services Centres (IFSCs) as Category I Alternative Investment Funds. This aligns with the International Financial Services Centres Authority (Fund Management) Regulations, 2022, ensuring clarity on tax exemptions for these funds.

2. Finance Companies in IFSCs

A new rule, 21ACA, outlines permissible activities for Finance Companies in IFSCs, such as:

  • Lending (loans, guarantees, and securitization),
  • Factoring and forfaiting of receivables, and
  • Treasury services, including intra-group financing and risk hedging.

Additionally, interest paid by these companies on debts issued by non-residents must be in foreign currency, ensuring adherence to international financial practices.

3. Retail Schemes and ETFs

The notification specifies conditions for retail schemes and Exchange Traded Funds (ETFs) to qualify under clause (4D) of section 10 of the Income-tax Act:

  • Retail schemes must maintain a diverse investor base and limit exposure to associates, unlisted securities, and single companies.
  • ETFs must be listed and traded on recognized stock exchanges and comply with IFSC regulations.

Implications

These amendments aim to promote investments through IFSCs, attract global financial players, and ensure regulatory compliance. Taxpayers and financial entities must align with the new rules to avoid penalties and benefit from the incentives provided.

Official copy of the notification has been attached

FAQ :

The main purpose is to streamline tax administration for IFSCs and align with global financial regulations.

Venture Capital Funds established in IFSCs are now recognised as Category I Alternative Investment Funds under clause (23FB) of section 10 of the Income-tax Act, 1961.

Permitted activities include lending (loans, guarantees, securitization), factoring and forfaiting of receivables, and treasury services like intra-group financing and risk hedging.

Interest paid by these companies on debts issued by non-residents must be in foreign currency.

Retail schemes need a diverse investor base and limited exposure to associates, unlisted securities, and single companies. ETFs must be listed, traded on recognised stock exchanges, and comply with IFSC regulations.




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Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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