Amended and updated notes on section 115AB of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to tax on income from units purchased in foreign currency or capital gains arising from their transfer.
Chapter XII (Sections 110 to 115BBG) of the Income Tax Act 1961 deals with the provisions related to determination of tax in certain special cases. Section 115AB of IT Act 1961-2023 provides for tax on income from units purchased in foreign currency or capital gains arising from their transfer.
Recently, we have discussed in detail section 115A (Tax on dividends, royalty and technical service fees in the case of foreign companies) of IT Act 1961. Today, we learn the provisions of section 115AB of Income-tax Act 1961. The amended provision of section 115AB is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 115AB of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-115AB: Tax on income from units purchased in foreign currency or capital gains arising from their transfer
Section 115AB(1) of Income Tax Act
Where the total income of an assessee, being an overseas financial organisation (hereinafter referred to as Offshore Fund) includes—
(a) income received in respect of units purchased in foreign currency; or
(b) income by way of long-term capital gains arising from the transfer of units purchased in foreign currency,
the income-tax payable shall be the aggregate of—
- (i) the amount of income-tax calculated on the income in respect of units referred to in clause (a), if any, included in the total income, at the rate of ten per cent;
- (ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and
- (iii) the amount of income-tax with which the Offshore Fund would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).
Section 115AB(2) of Income Tax Act
Where the gross total income of the Offshore Fund,—
(a) consists only of income from units or income by way of long-term capital gains arising from the transfer of units, or both, no deduction shall be allowed to the assessee under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VI-A and nothing contained in the provisions of the second proviso to section 48 shall apply to income referred to in clause (b) of sub-section (1);
(b) includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
Explanation: For the purposes of this section,—
(a) “overseas financial organisation” means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified under clause (23D) of section 10 and such arrangement is approved by the Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992), for this purpose;
(b) “unit” means unit of a mutual fund specified under clause (23D) of section 10 or of the Unit Trust of India;
(c) “foreign currency” shall have the meaning as in the Foreign Exchange Management Act, 1999 (42 of 1999);
(d) “public sector bank” shall have the meaning assigned to it in clause (23D) of section 10;
(e) “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);
(f) “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).