Rule 144 — Other conditions required to be fulfilled by a specified fund as referred to in Schedule VI [Note 1(g)(i)] to Act. Made under s.11 of the Income-tax Act, 2025.
Rule 144 gives effect to Section 11 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule states the "other conditions" a specified fund must fulfil for the purposes of Schedule VI [Note 1(g)(i)] to the Act, and what happens if it does not.
Sub-rule (1)(a) is the substantive condition: a unit holder of the specified fund, other than the sponsor or manager of the fund, who becomes a resident under section 6(2) to (7) in any tax year subsequent to the tax year in which the units were issued shall cease to be a unit holder of the fund within a period of three months from the end of the tax year in which he becomes a resident. Sub-rule (1)(b) requires the fund to maintain, for that purpose, eight particulars for its unit holders — the name of the unit holder; his tax identification number in the country of residence at the time the units were issued; the permanent account number, if available; the total number of units held; the total value of units held; whether the unit holder is a sponsor or a manager; the tax year in which the unit holder became resident; and the date of exit from the specified fund.
Sub-rule (2) requires the fund to certify that it has fulfilled the conditions under sub-rule (1) and to furnish information in respect of units held by residents in the annual statement of exempt income in Form No. 68.
Sub-rule (3) attaches the consequence: income attributable to units held by a non-resident, not being the permanent establishment of a non-resident in India, in a specified fund shall not be exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] to the Act unless the specified fund complies with sub-rule (2). Sub-rule (4) gives "specified fund" the meaning assigned to it in Schedule VI [Note 1(g)] to the Act.
The exemption in Schedule VI is built for non-resident investors in a specified fund, and a unit holder who becomes resident sits outside that design while continuing to hold. The rule requires such a holder to leave within a fixed period, and requires the fund to keep the records that show who became resident, when, and when they exited. Sub-rule (3) gives the requirement force by making the exemption for the fund's genuinely non-resident investors depend on the fund's own certification and reporting.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time within which the unit holder who becomes resident must cease to be a unit holder | Within three months from the end of the tax year in which he becomes a resident | A unit holder other than the sponsor or manager who becomes resident under section 6(2) to (7) in a tax year subsequent to the tax year in which the units were issued | Sub-rule (1)(a) |
The condition catches only a unit holder who becomes resident after the units were issued, and it excludes the sponsor and the manager, so a fund does not lose its footing because its own sponsor is resident. The three months run from the end of the tax year in which residence is acquired, not from the date residence is acquired, which gives a longer and more definite period than it first appears. The sanction in sub-rule (3) is aimed at the fund's failure but lands on the investors: it is the income attributable to units held by non-residents that ceases to be exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] if the fund does not comply with sub-rule (2). Note also what sub-rule (3) is conditioned on — compliance with sub-rule (2), the certification and reporting in Form No. 68 — so the record-keeping in sub-rule (1)(b) matters because the certification cannot honestly be given without it.
A unit holder who is neither sponsor nor manager subscribes to units of a specified fund while non-resident, and in a later tax year becomes resident under section 6(2). He must cease to be a unit holder within three months from the end of that tax year. The fund records his tax identification number at the time of issue, the tax year in which he became resident and his date of exit, certifies compliance and reports the units held by residents in its Form No. 68 annual statement of exempt income. Had the fund not made that certification and report, the exemption on income attributable to units held by its non-resident investors would be lost under sub-rule (3).
The fund meets it annually in Form No. 68 and in its unit holder register. An investor meets it when residence changes, in the notice from the fund requiring exit, and in the exemption claimed on fund income in the return.
shall cease to be a unit holder of such specified fund within a period of three months from the end of the tax year in which he becomes a resident
The specified fund shall certify that it has fulfilled the conditions under sub-rule (1) and furnish information in respect of units held by residents in the annual statement of exempt income in Form No. 68.