Section 218 — Tax on business income of Offshore Banking Units or International Financial Services Centre unit. Successor to s.115 of the 1961 Act.
Section 218 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Where the total income of an assessee includes income of the nature referred to in section 147(3) — income from an Offshore Banking Unit in a Special Economic Zone, from the banking business activities referred to in section 147(3)(b), from the approved business activities of a Unit of an International Financial Services Centre set up in such a Zone, or from the transfer of an aircraft or a ship leased by such a Unit — the aggregate income-tax payable is worked out by splitting the total income and applying the rates in the Table. The Table has two entries: at Sl. No. 1, income referred to in section 147(3) is charged at 15%; at Sl. No. 2, the total income as reduced by that income is charged at the rates in force.
The section separates the Offshore Banking Unit and International Financial Services Centre stream from everything else in the same assessee's total income and prices the two differently. Putting the split in a Table means the special rate cannot travel beyond the income section 147(3) describes, and the remainder stays on the ordinary rates in force for the year.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate on the Offshore Banking Unit and International Financial Services Centre income | 15% | On income referred to in section 147(3) included in the total income | Table, Sl. No. 1 |
| Rate on the balance of total income | Rates in force | On the total income as reduced by the income referred to at Sl. No. 1 | Table, Sl. No. 2 |
The rates live in the Table, not in the words of the section, and each rate is tied to its own slice of income: 15% reaches only the income of the nature described in section 147(3), and the rates in force reach only the balance. Two points follow. First, the trigger is the description of the income — income "of the nature referred to in section 147(3)" — not the deduction actually taken under section 147, so the identification exercise is done by reference to that sub-section's four clauses. Second, this section fixes a rate and nothing else: the deduction, the number of years for which it runs and the accountant's report are all section 147's business, and satisfying this section does not satisfy those.
An assessee has total income of 50 crore rupees, of which 30 crore is income of the nature referred to in section 147(3). The tax payable is the aggregate of 15% on that 30 crore under Table Sl. No. 1 and the rates in force on the remaining 20 crore under Table Sl. No. 2. The 15% does not touch the 20 crore, and the rates in force do not touch the 30 crore.
In the tax computation of an Offshore Banking Unit's or an International Financial Services Centre unit's return, and in an intimation or assessment where the rate applied to the section 147(3) stream is in dispute. An ordinary taxpayer never meets this section.
the aggregate of income-tax payable by the assessee shall be the aggregate of income-tax computed on the income specified in column B of the Table below at the rate specified in the corresponding entry in column C of the said Table
Total income as reduced by income referred to in Sl. No. (1)
See the full 1961 to 2025 concordance.
See the circulars index.
See the notifications index.
