Amended and updated notes on section 115AD 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 of Foreign Institutional Investors from securities 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 115AD of IT Act 1961-2023 provides for tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer.
Recently, we have discussed in detail section 115ACA (Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer) of IT Act 1961. Today, we learn the provisions of section 115AD of Income-tax Act 1961. The amended provision of section 115AD 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 115AD 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-115AD: Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer
Section 115AD(1) of Income Tax Act
Where the total income of a Specified Fund or investment division of an offshore banking unit or Foreign Institutional Investor includes—
- (a) income
other than income by way of dividends referred to in section 115-Oreceived in respect of securities (other than units referred to in section 115AB); or [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020] - (b) income by way of short-term or long-term capital gains arising from the transfer of such securities,
the income-tax payable shall be the aggregate of—
(i) the amount of income-tax calculated on the income in respect of securities referred to in clause (a), if any, included in the total income,—
- (A) at the rate of twenty per cent in case of Foreign Institutional Investor;
- (B) at the rate of ten per cent in case of specified fund or investment division of an offshore banking unit;
[Opening portion of section 115AD(1) and item (B) of sub-clause (i) of clause (b) in sub-section (1) of section 115AD amended (inserted) w.e.f. 01.04.2022 by the Finance Act, 2021]
(ii) the amount of income-tax calculated on the income by way of short-term capital gains referred to in clause (b), if any, included in the total income, at the rate of thirty per cent :
Provided that the amount of income-tax calculated on the income by way of short-term capital gains referred to in section 111A shall be at the rate of fifteen per cent;
(iii) 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:
Provided that in case of income arising from the transfer of a long-term capital asset referred to in section 112A, income-tax at the rate of ten per cent shall be calculated on such income exceeding one lakh rupees; and
(iv) the amount of income-tax with which the Specified Fund or Foreign Institutional Investor would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).
Section 115AD(1A) of Income Tax Act
Notwithstanding anything contained in sub-section (1), in case of specified fund, the provision of this section shall apply only to the extent of income that is attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) calculated in the prescribed manner.
[Sub-section (1A) of section 115AD shall be inserted w.e.f. 01.04.2021 by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020]
Section 115AD(1B) of Income Tax Act
Notwithstanding anything contained in subsection (1), in case of investment division of an offshore banking unit, the provisions of this section shall apply to the extent of income that is attributable to the investment division of such banking units, referred to in sub-clause (ii) of clause( c) to the Explanation to clause (4D) of section 10, as a Category-III portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities And Exchange Board of India Act, 1992, calculated in such manner as may be prescribed.
[Sub-section (1B) of section 115AD has been newly inserted w.e.f. 01.04.2022 by the Finance Act 2021]
Section 115AD(2) of Income Tax Act
Where the gross total income of the Specified Fund or investment division of an offshore banking unit or Foreign Institutional Investor—
(a) consists only of income in respect of securities referred to in clause (a) of sub-section (1), no deduction shall be allowed to it under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VI-A;
(b) includes any income referred to in clause (a) or clause (b) of sub-section (1), 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 Specified Fund or investment division of an offshore banking unit or Foreign Institutional Investor.
[Sub-section (2) of section 115AD has been amended (inserted) w.e.f. 01.04.2022 by the Finance Act 2021]
Section 115AD(3) of Income Tax Act
Nothing contained in the first and second provisos to section 48 shall apply for the computation of capital gains arising out of the transfer of securities referred to in clause (b) of sub-section (1).
Explanation: For the purposes of this section,—
(a) the expression “Foreign Institutional Investor” means such investor as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(aa) the expression “investment division of offshore banking unit” shall have the meaning assigned to it in clause (aa) of the Explanation to clause (4D) of section 10;
[Clause (aa) of explanation of section 115AD has been newly inserted w.e.f. 01.04.2022 by the Finance Act 2021]
(b) the expression “permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F;
(c) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)14;
(d) the expression “specified fund” shall have the same meaning assigned to it in clause (c) of the Explanation to clause (4D) of section 10.
[Clauses (b), (c) and (d) of Explanation to section 115AD substituted w.e.f. 01.04.2021 by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020]