Rule 210 — Condition for no deduction of tax at source from income in respect of units of non-residents referred to in section 393(2) [Table: Sl. No. 10] read with section 393(4) [Table: Sl. No. 15]. Made under s.393 of the Income-tax Act, 2025.
Rule 210 gives effect to Section 393 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 a single condition for the exemption from deduction of tax at source referred to in section 393(2) [Table: Sl. No. 10] read with section 393(4) [Table: Sl. No. 15]. Income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family shall not be subject to deduction of tax at source where the units have been acquired from the Unit Trust of India out of the funds in a non-resident (External) account maintained with any bank in India, or by remittance of funds in foreign currency, in either case in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the rules made under it.
The Table entry in section 393 leaves the condition for this exemption to be prescribed, and the condition the rule chooses is about the source of the money rather than the status of the holder alone. Being a non-resident Indian or a non-resident Hindu undivided family is not enough: the units must have been bought with funds that came in from outside, either out of a non-resident (External) account with a bank in India or by remittance in foreign currency, and in either case in compliance with the Foreign Exchange Management Act, 1999 and its rules.
Three things must all hold before no tax is deducted, and each of them is capable of failing on its own. The holder must be a non-resident Indian or a non-resident Hindu undivided family; the units must have been acquired from the Unit Trust of India; and the acquisition must have been out of a non-resident (External) account with a bank in India or by remittance of funds in foreign currency. The last limb also has a compliance element — the acquisition must accord with the Foreign Exchange Management Act, 1999 and the rules made under it — so units bought with rupee funds held in an ordinary resident account, or acquired otherwise than from the Unit Trust of India, fall outside the rule even though the holder's status is unchanged. The rule addresses only deduction at source; whether the income is chargeable is a separate question governed by the Act.
A non-resident Indian remits funds in foreign currency and buys units of the Unit Trust of India directly from it, in accordance with the Foreign Exchange Management Act, 1999. Income payable to him in respect of those units is not subject to deduction of tax at source under this rule. Units he later buys with money lying in an ordinary rupee account in India do not meet the source condition, so income on those units is outside the rule even though he remains a non-resident Indian.
A unit holder meets it when income on his units is paid without deduction, and in the records the payer keeps of how the units were acquired.
where such units have been acquired from the Unit Trust of India out of the funds in a non-resident (External) account, maintained with any bank in India or by remittance of funds in foreign currency