Rule 285 — Computation of exempt income in nature of capital gains in connection with relocation of original fund, etc. Made under s.263, s.173, s.515 of the Income-tax Act, 2025.
Rule 285 gives effect to Section 263, Section 173 and Section 515 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) sets the computation for Schedule VI [Table: Sl. No. 10]. Income of the nature of capital gains arising or received by a specified fund, attributable to units held by a non-resident who is not a permanent establishment of a non-resident in India, is computed as follows. Where the specified fund files Form No. 178 in accordance with sub-rule (2), the exempt income is (A×B)/C. A is the capital gains arising or received by the specified fund on transfer of shares of a company resident in India, where those shares were received by the specified fund, being the resultant fund, in relocation from the original fund or from its wholly owned special purpose vehicle, and where the capital gains would not have been chargeable to tax if the relocation had not taken place. B is the aggregate of daily assets under management held by non-resident unit holders who are not the permanent establishment of a non-resident in India, from the date the specified fund acquired the share to the date of its transfer. C is the aggregate of daily total assets under management of the specified fund over the same period. Clause (b) provides that if Form No. 178 is not filed by the specified fund, the exempt income shall be nil.
Sub-rule (2) requires the specified fund to furnish an annual statement of exempt income in Form No. 178 electronically under digital signature on or before the due date, duly verified in the manner indicated in it. Sub-rule (3) requires the statement to be certified by an accountant as defined in section 515(3)(b) before the specified date, and that accountant to furnish the certificate in Form No. 179 electronically under digital signature by that date, duly verified.
Sub-rule (4) defines the terms: assets under management is the closing balance of the value of assets or investments of the specified fund as on a particular date; due date has the meaning in section 263(1)(c); original fund, relocation, resultant fund, securities, specified fund and unit take their meanings from Schedule VI; permanent establishment takes its meaning from section 173(c); and specified date, in relation to certification of the Form No. 178 statement, means the date one month prior to the due date.
Schedule VI [Table: Sl. No. 10] exempts capital gains referable to non-resident unit holders after a fund relocates to India, but the exemption belongs to part of a pooled gain and there is no way to identify which unit holder's money bought which share. The rule solves that by proration over time — daily non-resident assets under management against daily total assets under management, across the exact holding period of the share — and makes the whole exemption conditional on an annual statement being filed and certified.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Exempt income where Form No. 178 is filed | (A×B)/C | A is the qualifying capital gains, B the aggregate daily assets under management held by qualifying non-resident unit holders, C the aggregate daily total assets under management, both from the date of acquisition of the share to the date of its transfer | Sub-rule (1)(a) |
| Exempt income where Form No. 178 is not filed | Nil | If the annual statement is not filed by the specified fund | Sub-rule (1)(b) |
| Due date for the annual statement in Form No. 178 | The due date as assigned in section 263(1)(c) | Furnished electronically under digital signature, duly verified | Sub-rules (2) and (4)(b) |
| Specified date for the accountant's certificate in Form No. 179 | The date one month prior to the due date | The statement must be certified before that date and the certificate furnished by it | Sub-rules (3) and (4)(e) |
The exemption is not automatic and does not survive a missed filing. Sub-rule (1)(b) makes the exempt income nil if Form No. 178 is not filed, so the computation in clause (a) never comes into play for a fund that does not file. The certificate runs ahead of the statement: sub-rule (3) requires certification before the specified date, which sub-rule (4)(e) fixes at one month prior to the section 263(1)(c) due date, so the accountant's work has to be done a month before the statement itself is due. The numerator A is narrow — only gains on shares of an Indian company that came into the fund in relocation, and only where those gains would not have been chargeable had the relocation not happened — so gains on shares the fund bought itself are outside it entirely. B and C are daily aggregates over the specific holding period of that share, not year-end figures, and B excludes units held by a permanent establishment of a non-resident in India, which section 173(c) defines.
A resultant fund transfers shares of an Indian company that it received in relocation, making a gain of Rs. 10 crore that would not have been chargeable had the relocation not occurred. Over the period from acquisition to transfer, the aggregate of daily assets under management held by qualifying non-resident unit holders is 60% of the aggregate of daily total assets under management. The exempt income is Rs. 6 crore, but only if Form No. 178 is filed; if it is not, sub-rule (1)(b) makes the exempt income nil.
The fund meets it as two annual electronic filings, the Form No. 179 certificate a month ahead of the Form No. 178 statement, and the exempt figure claimed in its return comes from this computation.
if Form No. 178 is not filed by the specified fund, the exempt income shall be nil
"specified date" in relation to the certification of the annual statement in Form No. 178, means the date one month prior to the due date