Rule 285: Exempt capital gains of a relocated specified fund: formula and Forms 178 and 179
Rule 285 computes the capital gains of a specified fund that are exempt under Schedule VI [Table: Sl. No. 10] to the extent attributable to non-resident unit holders, where the shares came from an original fund in a relocation. The exempt amount is (A x B) / C if the fund files Form No. 178; otherwise it is nil. Form No. 178 must be certified by an accountant, who files Form No. 179 one month before the due date.
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Bare law
Rule 285 - Computation of exempt income in nature of capital gains in connection with relocation of original fund, etc
(1) For the purpose of Schedule VI [Table: Sl. No. 10] to the Act, income of the nature of capital gains, arising or received by a specified fund, which is attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) in such specified fund shall be computed as under: —
(a) where the specified fund files Form No. 178 in accordance with sub-rule (2), the income exempt under Schedule VI [Table: Sl. No. 10] to the Act = [(A×B)/C], where, — A = income of the nature of capital gains, arising or received by a specified fund, which is on account of transfer of shares of a company resident in India, by the specified fund and where such shares were received by the specified fund, being resultant fund, in relocation from the original fund, or from its wholly owned special purpose vehicle, and where such capital gains would not be chargeable to tax if the relocation had not taken place; B = aggregate of daily assets under management of the specified fund, which are held by non-resident unit holders (not being the permanent establishment of a non-resident in India), from the date of acquisition of the share of a company resident in India by the specified fund to the date of transfer of such share; and C = aggregate of daily total assets under management of the specified fund, from the date of acquisition of the share of a company resident in India by the specified fund to the date of transfer of such share; and
(b) if Form No. 178 is not filed by the specified fund, the exempt income shall be nil.
(2) The specified fund shall furnish an annual statement of exempt income in Form No. 178 electronically under digital signature on or before the due date, which is duly verified in the manner indicated therein.
(3) It shall get the annual statement referred to in sub-rule (2), certified by an accountant as defined in section 515(3)(b), before the specified date and such accountant shall furnish by that date the certificate in Form No. 179 electronically under digital signature, which is duly verified in the manner indicated therein.
(4) In this rule, the expressions —
(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) "due date" shall have the meaning assigned to it in section 263(1)(c);
(c) "original fund", "relocation", "resultant fund", "securities", "specified fund" and "unit" shall have the meanings respectively assigned to them in Schedule VI to the Act;
(d) "permanent establishment" shall have the meaning assigned to it in section 173(c); and
(e) "specified date" in relation to the certification of the annual statement in Form No. 178, means the date one month prior to the due date;
Rule breakdown
The formula: Rule 285(1)(a)
A: capital gains on transfer of shares of an Indian company received by the specified fund (as resultant fund) in relocation from the original fund or its wholly owned SPV, where the gains would not have been taxable had relocation not happened.
B: aggregate of daily assets under management held by non-resident unit holders (not PEs in India), from acquisition to transfer of the share.
C: aggregate of daily total assets under management over the same period.
Exempt income = (A x B) / C.
Filing: Rule 285(1)(b) to (3)
If Form No. 178 is not filed, exempt income is nil.
Form No. 178: annual statement of exempt income, electronically under digital signature, by the due date under section 263(1)(c).
Certification: by an accountant as defined in section 515(3)(b), who files Form No. 179 by the specified date, one month before the due date.
Key takeaways
Formula
Exempt = A x B / C.
No form, no exemption
Without Form No. 178 the exempt income is nil.
Accountant certificate
Form No. 179 one month before the due date.
Practical checklist
- Keep daily AUM data split between non-resident and other unit holders.
- Fix the accountant's certification at least a month before the due date.
Avoid
- Do not include gains that would have been taxable even without relocation in A.
FAQs
What happens if Form No. 178 is not filed?
The exempt income is nil (Rule 285(1)(b)).
When must the accountant certify?
By the specified date, one month before the due date (Rule 285(3) and (4)(e)).
What is assets under management?
The closing balance of the value of assets or investments of the specified fund on a particular date (Rule 285(4)(a)).
Glossary
- Specified date
- The date one month before the due date (Rule 285(4)(e)).
- Resultant fund
- As defined in Schedule VI to the Act.