¹[21AK. Conditions for the purpose of clause (4E) of section 10.-

²[(1) The income accrued or arisen to, or received by, a non-resident as a result of  

(a) Transfer of non-deliverable forward contracts or offshore derivative instruments or over-thecounter derivatives; or  

(b) Distribution of income on offshore derivative instruments, ^3. [or over-the-counter derivatives] under clause (4E) of section 10 of the Act, shall be exempted subject to fulfilment of the following conditions, namely:—

i. the non-deliverable forward contract or offshore derivative instrument or over-the-counter derivative is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority ^3. [or any Foreign Portfolio Investor being a unit of an International Financial Services Centre] (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and

ii. such contract, instrument or derivative is not entered into by the non-resident through or on behalf of its permanent establishment in India.]

(2)  The offshore banking unit ^3. [or the Foreign Portfolio Investor] shall ensure that the condition provided in clause (ii) of sub-rule (1) is complied with.

 Explanation.- For the purpose of this rule, the expression,-

1. "permanent establishment" shall have the meaning assigned to it in clause (iiia) of section 92F;

2. "a non-deliverable forward contract" shall mean a contract for the difference between an exchange rate agreed before and the actual spot rate at maturity, with the spot rate being taken as the domestic rate or a market determined rate and such contract being settled with a single payment in a foreign currency; and

3. “offshore banking unit” means a banking branch Unit located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA of the Act..]
4. "offshore derivative instrument" shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the SEBI (Foreign Portfolio Investors) Regulations, 2019; ^3. [And]
5. "over-the-counter derivatives" shall mean a derivative contract that is not traded on an exchange but instead is privately negotiated between 88a ^4. [a purchaser and a seller]

6. "permanent establishment" shall have the meaning as assigned to it in clause (iiia) of section 92F of the Act.] 87a[and]]
7. ^3. [‘(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)]
8. "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).]

Notes:

1. Inserted by the Income-tax (33^rd Amendment) Rules, 2021Notificaion No. 136/2021 dated 10.12.2021.

2. Substituted by the Income-tax (Twelvth Amendment) Rules, 2023 Notification No. 50/2023 dated 17.07.2023

For sub-rule (1)-

(1) The income accrued or arisen to, or received by, a non-resident as a result of transfer of non-deliverable forward contracts under clause (4E) of section 10 of the Act, shall be exempted subject to fulfillment of the following conditions, namely:-

i. the non-deliverable forward contract is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and

ii. such contract is not entered into by the non-resident through or on behalf of its permanent establishment in India.

The following shall be substituted namely-

“(1) The income accrued or arisen to, or received by, a non-resident as a result of  

(a) Transfer of non-deliverable forward contracts or offshore derivative instruments or over-thecounter derivatives; or  

(b) Distribution of income on offshore derivative instruments, under clause (4E) of section 10 of the Act, shall be exempted subject to fulfilment of the following conditions, namely:—

i. the non-deliverable forward contract or offshore derivative instrument or over-the-counter derivative is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and

ii. such contract, instrument or derivative is not entered into by the non-resident through or on behalf of its permanent establishment in India.”

3. Inserted by the Income-tax (Twentieth Amendment) Rules, 2025. Dated 28.07.2025

4. Substituted by the Income-tax (Twentieth Amendment) Rules, 2025. Dated 28.07.2025

“a purchaser and a seller; and”

Shall be substituted

a purchaser and a seller