Quick Summary
The Draft Income Tax Rules, 2026 have introduced Rule 285, laying down the methodology for computing exempt income in the nature of capital gains arising in connection with the relocation of an original fund to a resultant fund. The rule is aimed at providing clarity for specified funds, especially
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FAQ :
Rule 285 establishes the method for calculating exempt income in the form of capital gains that arise from the relocation of an original fund to a resultant fund, specifically for specified funds with non-resident investors.
It applies to capital gains income received by a specified fund that is attributable to units held by non-resident investors, excluding those with a permanent establishment in India. It's relevant for transfers of Indian company shares during fund relocation.
If Form No. 178 is filed, exempt income is calculated using the formula: Exempt Income = A × B / C, where A is capital gains, B is daily AUM for non-resident unit holders, and C is total daily AUM of the specified fund.
If Form No. 178 is not filed, the exempt income will be treated as NIL. Compliance with filing requirements is therefore critical for accessing tax relief.
Specified funds must electronically file an annual statement of exempt income in Form No. 178, certified by an accountant. The accountant must also submit a certificate in Form No. 179.
Rule 285 enhances transparency in fund restructuring by directly linking tax exemptions to investor composition and reporting. Funds with significant non-resident investors must meticulously track AUM and maintain records for accurate exemption calculations.
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