The CBDT issued Notification No. 126/2025 dated July 28, 2025, amending Rule 21AK of the Income-tax Rules, 1962, effective from the date of publication. Key changes include: the inclusion of “over-the-counter derivatives” alongside offshore derivative instruments; extension of recognition to Foreign Portfolio Investors (FPIs) that are units of International Financial Services Centres (IFSCs); and clarification that FPIs are now covered similarly to offshore banking units. The Explanation section is updated to define “Foreign Portfolio Investor” as per SEBI’s 2019 regulations. These amendments aim to align tax rules with evolving financial market structures.
In exercise of the powers conferred by section 295 read with clause (4E) of section 10 of the
Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
(1) These rules may be called the Income-tax (Twentieth Amendment) Rules, 2025.
(2) They shall come into force on the date of their publication in the Official Gazette.
In the Income-tax Rules, 1962, in rule 21AK, ––
(a) in sub-rule (1), clause (b),-
(i) in the opening portion, after the words “offshore derivative instruments”, the words “or over-the-counter derivatives” shall be inserted;
(ii) in sub-clause (i), after the words “by the International Financial Services Centres Authority’’, the words “or any Foreign Portfolio Investor being a unit of an International Financial Services Centre” shall be inserted;
(b) in sub-rule (2), after the words “offshore banking unit”, the words “or the Foreign Portfolio Investor” shall be inserted.
(c) in the Explanation, –
(i) in clause (v), for the words “a purchaser and a seller; and”, the words “a purchaser and a seller;” shall be substituted;
(ii) in clause (vi), the word “and” shall be inserted at the end; and
(iii) after clause (vi,) the following clause shall be inserted, namely:-
‘(vii), “Foreign Portfolio Investor” means a person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).’.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2025/07/CBDT-N-No.-126_2025.pdf
