The Central Board of Direct Taxes (CBDT) has notified the Income-tax (Twentieth Amendment) Rules, 2025, introducing key changes to Rule 21AK of the Income-tax Rules, 1962, to expand the scope of eligible entities transacting in International Financial Services Centres (IFSCs).
The amendments expressly cover Foreign Portfolio Investors (FPIs) operating as units in IFSCs, alongside the existing provisions for offshore derivative instruments and offshore banking units. The rules also extend coverage to over-the-counter (OTC) derivatives, broadening the financial instruments recognised under the framework.
Inclusion of OTC derivatives: Transactions in OTC derivatives will now be treated on par with offshore derivative instruments for the purposes of the rule.
Recognition of FPIs in IFSCs: The scope of eligible entities is expanded to include FPIs registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019, if they operate as units within IFSCs.
Terminology adjustments: Modifications in the Explanation to Rule 21AK clarify the definitions and transaction parties involved.
The move is aimed at aligning the tax framework with evolving global investment practices and enhancing the competitiveness of IFSCs in attracting overseas investors. Experts believe this change could streamline participation by FPIs in India’s international financial hubs, boosting liquidity and market depth.
Notification Details
Notification No. 126/2025
Date: 28/07/2025
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