Section 208 — Offshore Fund 10pc | ITA 2025

Section 208 — - TAX ON OFFSHORE FUND INCOME

Section 208 is the substantive equivalent of 1961 s. 115AB -- the special rate provision for OVERSEAS FINANCIAL ORGANISATION (Offshore Fund) earning income from MUTUAL FUND UNITS in India. Concessional rate of 10% on income from such units. Designed to attract foreign portfolio investment into Indian MFs. Subject to specific conditions including non-resident status, no deduction for any expenditure / allowance, and registration / approval as offshore-fund. Practitioner relevance: foreign asset managers / fund-of-funds investing in Indian equity-MFs / debt-MFs.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on income of offshore funds

(1) The income-tax payable on the total income of an assessee, being an overseas financial organisation (herein referred to as Offshore Fund), which includes income specified in column B of the Table below, shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corre- sponding income specified in column B.

TABLE Sl. Income Rate of income- No. tax payable

A B C

1. Income received in respect of units purchased in 10% foreign currency.

2. Long-term capital gains arising from the transfer of 12.5% units purchased in foreign currency.

3. Total income as reduced by income referred against Rates in force. serial numbers 1 and 2.

(2) Where the gross total income of the Offshore Fund—

(a) consists only of income from units or income by way of long-term cap- ital gains arising from the transfer of units, or both, no deduction shall be allowed to the assessee under sections 28 to 58, 60 and 61 or section 93(1)(a) or (e) or under Chapter VIII;

(b) includes any income referred to in clause (a),—

(i) the gross total income shall be reduced by such income; and

(ii) the deduction under Chapter VIII shall be allowed as if the gross total income so reduced were the gross total income of the assessee.

(3) For the purposes of this section,—

(a) “overseas financial organisation” means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India,—

(i) which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified in Schedule VII (Table: Sl. No. 20 or 21); and

(ii) such arrangement is approved by the Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992), for this purpose;

(b) “public financial institution” shall have the same meaning as assigned to it in section 2(72) of the Companies Act, 2013 (18 of 2013);

(c) “unit” means unit of,—

(i) a mutual fund specified in Schedule VII (Table: Sl. No. 20 or 21); or

(ii) the Unit Trust of India. Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

ELIGIBLE: OVERSEAS FINANCIAL ORGANISATION (OFO) -- non-resident entity registered/approved as offshore fund per CG-notified procedure. INCOME COVERED: (a) income from UNITS of MUTUAL FUNDS in India; (b) LTCG on transfer of such units. RATE: 10% flat on such income. CONDITIONS: NO deduction for any expenditure / allowance / loss set-off in respect of this income. Plus surcharge + cess. PRACTITIONER: useful for foreign-domiciled investment managers participating in Indian MF market; specific OFO registration with SEBI / RBI; document compliance with Rules.

CROSS-REFERENCES

Section 67 -- CG charge.
Section 198 -- STT-paid LTCG (separate regime; preferred for equity-MF).
Section 209 -- NR general rates (alternative).
Section 210 -- Specified fund / FII (parallel).
Section 159 -- DTAA (more-beneficial test).

← All sections (537)Act 2025 hub

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 208	INCOME-TAX ACT, 1961 -- s. 115AB
Offshore Fund 10% on MF unit income	1961 s. 115AB