CBDT notifies Rule 2DD for computation of exempt income of specified fund u/s 10(23FF)

Notification No. 138/2021, dated 27-12-2021

The Finance Act, 2021 has inserted a clause (23FF) to section 10 to provide that any income in the nature of capital gains, arising or received by a non-resident or a specified fund, which is on account of transfer of shares of a company resident in India, by the resultant fund or a specified fund shall be exempt from tax if:

(a) Such shares were transferred from the original fund to the resultant fund in relocation; and

(b) Capital gains on such shares were not chargeable to tax if that relocation had not taken place.

However, the exemption is available, to the extent, income attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) in such manner as may be prescribed.

The Central Board of Direct Taxes (CBDT) has notified Rule 2DD prescribing the method for computation of income exempt under section 10(23FF) in the hands of specified fund. The following is the formula to compute income exempt under section 10(23FF):
Exempt income = A * B/C, where

A = Capital gains arising from the transfer of shares of a company resident in India. However, such shares were received by the specified fund, being resultant fund, in relocation from the original fund or its wholly-owned special purpose vehicle. Furthermore, such capital gains would not be chargeable to tax if the relocation had not taken place;

B = Aggregate of daily ‘assets under management of the specified fund which are held by non-resident unitholders (not being the permanent establishment of a non-resident in India), from the date of acquisition of the share of a company resident in India to the date of transfer of such share.

C = Aggregate of daily total ‘assets under management’ of the specified fund, from the date of acquisition of the share of a company resident in India to the date of transfer of such share

Filing of Forms

The specified fund is required to file an annual statement of exempt income in the Form No. 10-II electronically under digital signature. This Form is to be filed on or before the due date of furnishing return of income.

The specified fund is also required to get the annual statement certified by a Chartered Accountant and file the certificate in Form No. 10-IJ electronically one month prior to the due date of filing of return of income.

Click Here to Read the Full Notification