Rule 142 — Conditions referred to in Schedule VI [Note 1(g)(ii)(B)] to Act required to be fulfilled by an investment division of an offshore banking unit. Made under s.11, s.263 of the Income-tax Act, 2025.
Rule 142 gives effect to Section 11 and Section 263 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) lists the conditions an investment division of an offshore banking unit must fulfil for the purposes of Schedule VI [Note 1(g)(ii)(B)]. It must maintain separate accounts for the registered investment division reflecting the true and fair accounts of all transactions relating to that division, ensuring that direct and indirect expenses relating to the incomes referred to in rule 141 and other incomes are properly recorded, accounted for and apportioned. It must get those accounts audited by an accountant before the specified date, and the accountant must furnish by that date the audit report in Form No. 71, electronically under digital signature, duly verified in the manner indicated therein. It must maintain proper documentation for inbound remittance for buying and selling the investments and for the use of inward remittance made to India, bank statements of all accounts of the registered investment division, contract notes relating to purchase and sale of securities by that division, and a statement of securities issued by the custodian.
Sub-rule (2) attaches the consequence: the income of a specified fund attributable to an eligible investment division is not exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] unless it complies with sub-rule (1)(b) and rule 141(3).
Sub-rule (3) supplies the definitions. "Accountant" takes its meaning from section 515(3)(b); "investment division of an offshore banking unit" from Schedule VI [Note 1(b)]; "registered investment division" means an investment division of an offshore banking unit which fulfils the condition specified in Schedule VI [Note 1(g)(ii)(A)]; "securities" from Schedule VI [Note (1)(e)]; and "specified date", in relation to the accounts of the registered investment division of any tax year, means a date one month prior to the due date specified under section 263(1)(c) for that tax year.
The exemption for an investment division of an offshore banking unit depends on being able to tell that division's income and expenses apart from the rest of the banking unit, which shares its books, its bankers and its custodian. Schedule VI [Note 1(g)(ii)(B)] leaves those conditions to be prescribed. Rule 142 prescribes them as a records-and-audit package — separate accounts, apportioned expenses, an audited Form No. 71 by a fixed date, and a documentary trail for remittances, bank accounts, contract notes and custodian holdings — and sub-rule (2) makes the audit condition go to the exemption itself rather than merely attracting a penalty.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| The specified date for the audit and for furnishing Form No. 71 | One month prior to the due date specified under section 263(1)(c) | In relation to the accounts of the registered investment division of the tax year | Rule 142(3)(e), applied by rule 142(1)(b) |
One date governs two acts: the accounts must be audited before the specified date and the report furnished by that same date, and the specified date is a month ahead of the section 263(1)(c) return due date, not the return date itself. Sub-rule (2) is the sharp end — the exemption under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] is conditional on compliance with sub-rule (1)(b) and rule 141(3), so a late or missing Form No. 71 costs the exemption on the income attributable to the eligible investment division. The remaining conditions in sub-rule (1) are record-keeping rather than filing obligations, but they are what makes the audit possible: expenses have to be apportioned between the rule 141 incomes and other incomes at the time they are recorded, not reconstructed afterwards. Note too that "registered investment division" is not merely a division that keeps these records — it must first fulfil the condition in Schedule VI [Note 1(g)(ii)(A)].
An offshore banking unit's investment division keeps its transactions inside the unit's common ledgers and files no separate audit report. Its accounts are not separate accounts reflecting the true and fair accounts of all transactions relating to the investment division as rule 142(1)(a) requires, and no Form No. 71 is furnished by the date one month prior to the section 263(1)(c) due date. Under rule 142(2), the income of the specified fund attributable to that division is not exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4].
You meet it as the Form No. 71 audit report filed electronically for the investment division, and in any examination of a specified fund's exemption, where the separate accounts, contract notes, bank statements and the custodian's statement of securities are called for.
it shall get the accounts referred to in clause (a), audited by an accountant before the specified date and such accountant shall furnish by that date the report of such audit in Form No. 71, electronically under digital signature, and duly verified in the manner indicated therein
"specified date", in relation to the accounts of the registered investment division of any tax year, means a date one month prior to the due date specified under section 263(1)(c) for the said tax year