Rule 139: Specified-fund exempt income for non-resident units
Rule 139 calculates the specified exempt income attributable to qualifying non-resident unit holders. Four income categories have separate allocation ratios, and the annual Form 68 statement is an express condition of the exemption.
Official notified Income-tax Rules, 2026Need advice on Rule 139?
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On this page
- Bare law
- Classify each income stream before allocation
- Transfer income uses aggregate daily AUM
- Receipt income uses the receipt-date ratio
- Exclude the stated Indian permanent-establishment category
- Form 68 is a condition, not just a supporting record
- Key takeaways
- Practical checklist
- FAQs
- Glossary
- Official sources
Bare law
Rule 139 - Computation of exempt income of specified fund attributable to units held by non-resident under Schedule VI [Table: Sl. Nos. 1 to 4] to Act
(1) For the purposes of Schedule VI [Table: Sl. Nos. 1 to 4] to the Act, exempt income of specified fund attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) shall be computed in accordance with the following formula: — (A × r1) + (B × r2) + (C × r3) + (D × r4) Where, — A = any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in section 70(1)(r), on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange, as referred to in Schedule VI [Table: Sl. No. 1] to the Act; B = any income accrued or arisen to, or received by a specified fund as a result of transfer of securities (other than shares in a company resident in India), as referred to in Schedule VI [Table: Sl. No. 2] to the Act; C = any income accrued or arisen to, or received by a specified fund from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India, as referred to in Schedule VI [Table: Sl. No. 3] to the Act; D = any income accrued or arisen to, or received by a specified fund from a securitisation trust which is chargeable under the head ―Profits and gains of business or profession‖, as referred to in Schedule VI [Table: Sl. No. 4] to the Act; r1 = ratio of the aggregate of daily assets under management of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total assets under management of the specified fund, from the date of acquisition of the capital asset referred to in section 70(1)(r) to the date of transfer of such capital asset; r2 = ratio of the aggregate of daily assets under management of the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the aggregate of daily total assets under management of the specified fund, from the date of acquisition of the security (other than shares in a company resident in India) to the date of transfer of such security; r3 = ratio of the assets under management in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total asset under management of the specified fund, as on the date of receipt of such income from securities issued by a non- resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India; and r4 = ratio of the assets under management in the specified fund held by non-resident unit holders (not being the permanent establishment of a non-resident in India) to the total assets under management of the specified fund, as on the date of receipt of such income from a securitisation trust which is chargeable under the head ―Profits and gains of business or profession‖.
(2) The specified fund shall furnish an annual statement of exempt income in Form No. 68 electronically under digital signature on or before the due date specified under section 263(1)(c) and duly verified in the manner indicated therein.
(3) The income attributable to units held by a non-resident (not being the permanent establishment of a non-resident in India) in a specified fund shall not be exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] to the Act unless the specified fund complies with sub-rule (2).
(4) For the purposes of this rule, — (a) ―assets under management‖ means the closing balance of the value of assets or investments of the specified fund as on a particular date; (b) ―International Financial Service Centre‖ shall have the same meaning as assigned to it in section 2(q) of the Special Economic Zones Act, 2005 (28 of 2005); and (c) the expressions ―permanent establishment‖, ―securities‖, ―specified fund‖ and ―unit‖ shall have the meanings respectively assigned to them in Note 1 below Schedule VI of the Act.
Rule breakdown
Classify each income stream before allocation
The formula is (A × r1) + (B × r2) + (C × r3) + (D × r4). A concerns the specified asset transfer on a recognised IFSC exchange with convertible-foreign-exchange consideration. B concerns securities transfers other than shares in an Indian-resident company.
C concerns the specified non-resident-issued securities income otherwise not accruing or arising in India. D concerns the stated securitisation-trust business income. Each category retains its own statutory conditions.
Transfer income uses aggregate daily AUM
For r1 and r2, use the ratio of aggregate daily qualifying non-resident AUM to aggregate daily total AUM from acquisition to transfer of the relevant asset or security.
A single year-end ownership percentage is not a substitute for these daily measures. Retain acquisition, transfer and daily holding records.
Receipt income uses the receipt-date ratio
For r3 and r4, the ratio is measured as on the date the relevant income is received. AUM means the closing value of assets or investments on the particular date.
For example, category C income of ₹10 lakh and a qualifying receipt-date ratio of 80% produce ₹8 lakh in that formula limb, assuming the category’s other conditions are met.
Exclude the stated Indian permanent-establishment category
The qualifying non-resident description excludes the permanent establishment of a non-resident in India. Use the Act’s definitions of permanent establishment, securities, specified fund and unit.
Do not classify a unit solely from its holder’s mailing address or treat all foreign-connected holdings as equivalent.
Form 68 is a condition, not just a supporting record
The fund furnishes the annual exempt-income statement electronically under digital signature, duly verified, by the prescribed return-linked due date. The notified text prints section 263(1)(c); check the current applicable return-date provision.
Sub-rule (3) expressly denies the identified exemption unless the statement requirement is met. Retain the filed statement and its calculation trail.
Key takeaways
Four separate limbs
Classify income before applying its ratio.
Daily versus receipt-date AUM
Different categories use different measurement periods.
Form 68 condition
Compliance is expressly linked to exemption.
Practical checklist
- Separate the four income categories.
- Maintain daily and receipt-date AUM evidence.
- File and retain the verified Form 68.
Avoid
- Do not substitute one year-end ratio for every calculation.
FAQs
Can every ratio use year-end non-resident ownership?
No. r1 and r2 use aggregate daily AUM over the acquisition-to-transfer period; r3 and r4 use the receipt date.
Does the qualifying non-resident category include an Indian permanent establishment?
The rule expressly excludes the specified permanent-establishment category.
Is the annual statement optional if the calculation is correct?
No. The identified exemption requires compliance with sub-rule (2).
Glossary
- AUM
- The closing balance of the value of the fund’s assets or investments on a particular date.