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.
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
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