Rule 21AK - Conditions for the purpose of clause (4E) of section 10 - Income-tax Rules, 1962

1 [21AK. Conditions for the purpose of clause (4E) of section 10 .- 6 [ (1) The income accrued or arisen to, or received by, a non-resident as a result of (a) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives; or (b) distribution of income on offshore derivative instruments, under clause (4E) of section 10 of the Act, shall be exempted subject to fulfilment of the following conditions, namely: (i) the non-deliverable forward contract or offshore derivative instrument or over-the-counter derivative is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and (ii) such contract, instrument or derivative is not entered into by the non-resident through or on behalf of its permanent establishment in India. ] (2) The offshore banking unit shall ensure that the condition provided in clause (ii) of sub-rule (1) is complied with. 5 [Explanation. -For the purpose of this rule, the expression,- (i) derivative shall have the same meaning as assigned to it in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956(42 of 1956); (ii) a non-deliverable forward contract shall mean a contract for the difference between an exchange rate agreed before and the actual spot rate at maturity, with the spot rate being taken as the domestic rate or a market determined rate and such contract being settled with a single payment in a foreign currency; (iii) offshore banking unit means a banking branch Unit located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA of the Act; (iv) offshore derivative instrument shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation (2) of the SEBI Foreign Portfolio Investor Regulations, 2019; (v) over-the-counter derivatives shall mean a derivative contract that is not traded on an exchange but instead is privately negotiated between a purchaser and a seller; and (vi) permanent establishment shall have the meaning as assigned to it in clause (iiia) of section 92F of the Act. ]] ************** NOTES:- 1. Inserted vide NOTIFICATION NO. 136/2021 dated 10-12-2021 2. Inserted vide NOTIFICATION NO. 87/2022 dated 01-08-2022 3. Inserted vide NOTIFICATION NO. 87/2022 dated 01-08-2022 4. Inserted vide NOTIFICATION NO. 87/2022 dated 01-08-2022 5. Substituted vide NOTIFICATION NO. 87/2022 dated 01-08-2022 before it was read as, Explanation .- For the purpose of this rule, the expression,- (i) permanent establishment shall have the meaning assigned to it in clause (iiia) of section 92F; (ii) a non-deliverable forward contract shall mean a contract for the difference between an exchange rate agreed before and the actual spot rate at maturity, with the spot rate being taken as the domestic rate or a market determined rate and such contract being settled with a single payment in a foreign currency; and (iii) offshore banking unit means a banking branch Unit located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA of the Act. 6. Substituted vide NOTIFICATION NO. 50/2023 dated 17-07-2023 before it was read as, (1) The income accrued or arisen to, or received by, a non-resident as a result of transfer of non-deliverable forward contracts 2 [ or offshore derivative instruments or over-the-counter derivatives, ] under clause (4E) of section 10 of the Act, shall be exempted subject to fulfillment of the following conditions, namely: (i) the non-deliverable forward contract 3 [ or offshore derivative instrument or over-the-counter derivative ] is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and (ii) such contract 4 [ , instrument or derivative ] is not entered into by the non-resident through or on behalf of its permanent establishment in India .