Clause 110 of the Finance Bill, 2026 seeks to amend Schedule VI of the Income-tax Act, 2025, which deals with income not to be included in the total income of certain eligible persons operating in, or deriving income from, an International Financial Services Centre (IFSC).
The amendment proposes to align the definition of the term “specified fund” contained in Note 1(g) to Schedule VI with the definition already provided under section 10(4D) of the Income-tax Act, 1961. The change is definitional and clarificatory, intended to ensure consistency between the earlier law and the new tax statute.
The amendment will take effect from 1 April 2026, i.e., from tax year 2026-27 onwards.
Background: Schedule VI and IFSC-Linked Exemptions
Schedule VI of the Income-tax Act, 2025 specifies categories of income that are excluded from total income in the hands of certain eligible persons connected with IFSCs.
- Serial Numbers 1 to 4 of the Table in Schedule VI apply specifically to “specified funds”
- The eligibility for these exclusions depends entirely on whether an entity qualifies as a specified fund under Note 1(g)
Given the importance of these exemptions to IFSC-based fund activity, precision in the definition of “specified fund” is critical.
Existing Position Under the Income-tax Act, 2025
Under the current provisions:
- The term “specified fund” is defined in Note 1(g) to Schedule VI
- However, this definition is not expressly aligned with the definition of “specified fund” under section 10(4D) of the Income-tax Act, 1961, which has governed IFSC fund taxation for several years
This definitional divergence created scope for:
- Interpretational uncertainty, and
- Potential inconsistency in applying IFSC-related tax exemptions under the new Act
What Does Clause 110 of the Finance Bill 2026 Propose?
Clause 110 proposes to:
- Amend Note 1(g) to Schedule VI, and
- Align the definition of “specified fund” with the definition provided under section 10(4D) of the Income-tax Act, 1961
Consequential amendments are also proposed to ensure that the revised definition applies coherently across Serial Numbers 1 to 4 of Schedule VI.
Meaning of the Proposed Amendment
In practical terms, the amendment means that:
- The term “specified fund” under the Income-tax Act, 2025 will carry the same meaning and scope as under section 10(4D) of the Income-tax Act, 1961
- Eligibility for income exclusion under Schedule VI (Sl. Nos. 1-4) will be determined using a well-established and settled definition
- There is no substantive change to the nature or extent of IFSC tax exemptions
The amendment is purely definitional, not expansionary or restrictive.
Rationale for the Amendment
- Section 10(4D) of the Income-tax Act, 1961 contains a long-standing and settled definition of “specified fund”
- Maintaining different definitions across statutes could lead to ambiguity and litigation
- Alignment ensures:
- Continuity between the earlier and current tax regimes
- Certainty for IFSC-based funds and administrators
- Consistent application of exemptions
Implications of the Amendment
1. Improved Legal Certainty for IFSC Funds
- IFSC-based funds can rely on an existing, familiar definition
- Reduces risk of differing interpretations under the 2025 Act
2. No Change in Substantive Tax Benefits
- The amendment does not create new exemptions
- It does not withdraw or narrow existing exemptions
- It only clarifies who qualifies as a “specified fund”
3. Smoother Transition from the 1961 Act to the 2025 Act
- Prevents unintended consequences arising from definitional mismatch
- Ensures that funds previously qualifying under section 10(4D) continue to be treated consistently
What the Amendment Does Not Do
- ❌ It does not amend Serial Nos. 1-4 of Schedule VI themselves
- ❌ It does not alter tax rates, exemption periods, or conditions
- ❌ It does not change regulatory requirements applicable to IFSC funds
The amendment is confined strictly to definition alignment.
Effective Date
✔ Applicable from 1 April 2026. Applies to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 110 of the Finance Bill, 2026 introduces a technical but significant clarification by aligning the definition of “specified fund” in Schedule VI of the Income-tax Act, 2025 with section 10(4D) of the Income-tax Act, 1961. The amendment strengthens consistency, certainty, and continuity in the IFSC tax framework, without altering the substantive scope of exemptions.
The change should be viewed as a harmonisation measure, ensuring that IFSC-related tax benefits operate seamlessly under the new income-tax statute.
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