Rule 140 — Determination of income of a specified fund attributable to units held by non-residents under section 210(2). Made under s.210 of the Income-tax Act, 2025.
Rule 140 gives effect to Section 210 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) gives the formula for capital gains. For the purposes of section 210(2), the income of a specified fund by way of short-term or long-term capital gains referred to in section 210(1) [Table: Sl. Nos. 2 to 5] that is attributable to units held by a non-resident, other than the permanent establishment of a non-resident in India, is A = B x C, where B is the income arising from transfer of the security and C is the ratio of the aggregate of daily assets under management of the fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total assets under management of the fund, from the date of acquisition of the security to the date of its transfer.
Sub-rule (2) gives the formula for income received in respect of securities. For income referred to in section 210(1) [Table: Sl. No. 1], X = Y x Z, where Y is the income received in respect of securities and Z is the ratio of the assets under management held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total assets under management of the fund, as on the date of receipt of that income.
Sub-rule (3) requires the specified fund to furnish an annual statement of income eligible for concessional taxation in Form No. 69, on or before the due date specified under section 263(1)(c). Sub-rule (4) attaches the consequence: income of a specified fund referred to in section 210(1) attributable to units held by such a non-resident shall not be eligible for the tax rates specified in section 210 unless the fund complies with sub-rule (3).
Sub-rule (5) defines the terms. "Assets under management" means the closing balance of the value of assets or investments of the specified fund as on a particular date. "Permanent establishment" takes its meaning from section 173(c), "securities" from Schedule VI [Note 1(e)], "specified fund" from Schedule VI [Note 1(g)(i)] and "units" from Schedule VI [Note 1(j)].
Section 210 taxes a specified fund's income at concessional rates only so far as it is attributable to units held by non-residents, and that share changes every day as units are issued and redeemed. Section 210(2) leaves the method of attribution to be prescribed. This rule supplies two different measures for two different kinds of income: a holding-period average for gains on a security, because the non-resident share moved while the security was held, and a single-date ratio for income received on securities, because that income arrives on one day. It then makes the concession conditional on an annual statement, so the ratio is reported rather than merely computed.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Income attributable to non-resident units from transfer of a security | A = B x C | B is the income arising from transfer of the security; C is the ratio of the aggregate of daily assets under management held by non-resident unit holders to the aggregate of daily total assets under management, from the date of acquisition of the security to the date of transfer | Sub-rule (1) |
| Income attributable to non-resident units from income received in respect of securities | X = Y x Z | Y is the income received in respect of securities; Z is the ratio of assets under management held by non-resident unit holders to total assets under management, as on the date of receipt of that income | Sub-rule (2) |
| Due date for the annual statement in Form No. 69 | On or before the due date specified under section 263(1)(c) | Statement of income eligible for concessional taxation; failure costs the section 210 rates by virtue of sub-rule (4) | Sub-rule (3) |
The two ratios are not interchangeable, and using the wrong one is the common failure. For gains on a security the ratio is built from daily assets under management aggregated across the whole holding period, from acquisition to transfer, so a fund cannot take the non-resident share on the date of sale; for income received on securities the ratio is taken as on the date of receipt alone. Assets under management is a defined figure — the closing balance of the value of assets or investments as on a particular date — not the number of units. The permanent establishment of a non-resident in India is excluded throughout, so units held through such an establishment count in the denominator but not in the numerator. Sub-rule (4) is the sting: the concessional rates in section 210 are not available at all for the attributable income unless Form No. 69 is furnished by the section 263(1)(c) due date, which turns a filing obligation into a condition of the rate.
A specified fund buys a security and sells it two years later, realising a gain of Rs 10 crore. Over that holding period the aggregate of daily assets under management held by non-resident unit holders, excluding any permanent establishment of a non-resident in India, is 60% of the aggregate of daily total assets under management. Under sub-rule (1) the income attributable to those units is Rs 6 crore. Dividend received on another security on a single day, when the corresponding ratio stood at 55%, is attributed under sub-rule (2) at 55% instead. If the fund does not furnish Form No. 69 by the section 263(1)(c) due date, sub-rule (4) denies the section 210 rates on that income.
A specified fund meets it in its annual Form No. 69 filing and in the computation supporting the concessional rate claimed in its return; a unit holder meets it indirectly, through the fund's attribution of income to units held by non-residents.
shall not be eligible for tax rates specified in section 210 unless such fund complies with sub-rule (3)
"assets under management" means the closing balance of the value of assets or investments of the specified fund as on a particular date