Income Tax Department Expands Rule 21AK Scope: FPIs in IFSCs Now Eligible for Exemptions

On July 28, 2025 the Central Board of Direct Taxes (CBDT) under section 295 with clause (4E) of section 10 of the Income Tax Act, 1961 issued a notification for Income Tax Rules. CBDT enhanced its key changes like Expanded scope, clarity ,Definitions and others. its main motive is to attract more foreign capital and increase competition of Indian IFSC global financial hubs.

CBDT enhances Rule 21K of the Income tax Rules, 1961. Below are the modified rules:

1. These rules may be called the Income tax (Twentieth Amendment) Rules, 2015, and they will come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962, in rule 21AK

(a) in clause (b) (1)

i) In the opening portion, after the words “offshore derivative instruments,” the words “or over-the-counter derivatives” will be placed.

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” will be placed.

(b) in sub rule (2), after the words “Offshore banking unit,” the words “or the Foreign Portfolio Investor” will be placed.

(c) in the Explanation CBDT reports:

in clause (v), for the word “a purchaser and a seller; and,” will be substituted by “a purchaser and a seller”

in clause (vi), the word “and” will be placed at the end and

after clause (vi), the following mentions will be placed:

‘(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).