Rule 142: Investment-division accounts, audit and Form 71 conditions
Rule 142 sets the accounting, audit and record conditions for the stated offshore-banking investment division. The audit report in Form 71 has an earlier specified date, while exemption also depends on the annual statement required by Rule 141.
Official notified Income-tax Rules, 2026Need advice on Rule 142?
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Bare law
Rule 142 - Conditions referred to in Schedule VI [Note 1(g)(ii)(B)] to Act required to be fulfilled by an investment division of an offshore banking unit
(1) For the purposes of Schedule VI [Note 1(g)(ii)(B)] to the Act, an investment division of an offshore banking unit shall fulfil the following conditions: — (a) it shall maintain separate accounts for the registered investment division reflecting the true and fair accounts of all transactions relating to the investment division and which shall ensure that direct and indirect expenses relating to the incomes referred to in rule 141 and other incomes, are properly recorded, accounted for and apportioned thereto; (b) it shall get the accounts referred to in clause (a), audited by an accountant before the specified date and such accountant shall furnish by that date the report of such audit in Form No. 71, electronically under digital signature, and duly verified in the manner indicated therein; (c) it shall maintain proper documentation in respect of — (i) inbound remittance for buying and selling the investments; and (ii) the use of inward remittance made to India; (d) it shall maintain bank statement of all accounts of the registered investment division; (e) it shall maintain contract notes relating to purchase and sale of securities by the registered investment division; and (f) it shall maintain a statement of securities issued by the custodian.
(2) The income of a specified fund attributable to an eligible investment division shall not be exempt under section 11(1) read with Schedule VI [Table: Sl. Nos. 1 to 4] to the Act unless it complies with sub-rule (1)(b) and rule 141(3).
(3) For the purposes of this rule, — (a) ―accountant‖ shall have the meaning assigned to it in section 515(3)(b); (b) ―investment division of an offshore banking unit‖ shall have the meaning assigned to it in Schedule VI [Note 1(b)] to the Act; (c) ―registered investment division‖ shall mean an investment division of an offshore banking unit which fulfils the condition specified in Schedule VI [Note 1(g)(ii)(A)]; (d) ―securities‖ shall have the meaning assigned to it in Schedule VI [Note (1)(e)] to the Act; and (e) ―specified date‖, in relation to the accounts of the registered investment division of any tax year, means a date one month prior to the due date specified under section 263(1)(c) for the said tax year.
Rule breakdown
Separate accounts must show the division’s transactions
Maintain separate accounts reflecting the true and fair record of all investment-division transactions. Direct and indirect expenses must be properly recorded, accounted for and apportioned between Rule 141 income and other income.
A combined bank balance or group-level ledger alone does not establish the required division-level accounting.
Audit and Form 71 share the specified date
Get the accounts audited before the specified date, and have the defined accountant furnish the verified audit report electronically under digital signature in Form 71 by that date.
The specified date is one month before the prescribed return due date. The quote prints section 263(1)(c); check the current applicable return-date provision before computing it.
Retain remittance and investment records
Maintain documentation of inbound remittances for buying and selling investments and the use of inward remittances. Keep statements for all division bank accounts, securities purchase and sale contract notes, and the custodian’s securities statement.
Reconcile the funds movement to investments and disposals rather than retaining the documents as unrelated files.
Both the audit and annual statement matter
Sub-rule (2) expressly denies the identified exemption unless Rule 142(1)(b) and Rule 141(3) are met. These concern the audit/report and annual Form 70 statement respectively.
Form 71 does not replace Form 70, and the annual statement does not replace the audit report.
Prepare a year-end compliance sequence
Close and reconcile separate accounts, verify expense allocations, supply the supporting records to the accountant, complete Form 71 by its specified date, and coordinate Form 70 separately.
Keep acknowledgments and signed reports with the computation supporting the exemption.
Key takeaways
Separate accounts
Record and apportion direct and indirect expenses.
Earlier audit date
The specified date precedes the return due date by one month.
Two reporting obligations
Form 71 audit and Form 70 statement have distinct roles.
Practical checklist
- Reconcile division accounts and expense allocations.
- Schedule the earlier audit date.
- Retain all specified supporting records.
Avoid
- Do not treat Form 70 and Form 71 as interchangeable.
FAQs
Does Form 71 replace the annual exempt-income statement?
No. Sub-rule (2) requires the audit/report condition and Rule 141(3) annual statement condition.
What remittance evidence is required?
Documentation of inbound remittances for buying and selling investments and of the use of inward remittances.
Are bank statements enough on their own?
The rule also requires separate accounts, audit and the specified remittance, contract-note and custodian records.
Glossary
- Specified date
- One month before the prescribed return due date for the relevant tax year.