The income would be exempted subject to fulfillment of conditions
The Central Board of Direct Taxes (CBDT) has notified conditions for the exemption of income accrued or received by a non-resident as a result of the transfer of non-deliverable forward contracts.
The Board has notified the Income-Tax (Amendment) Rules, 2021, which seeks to amend the Income-Tax Rules, 1962.
The income would be exempted subject to fulfillment of two conditions.
First, the non-resident enters into the non-deliverable forward contract with an offshore banking unit of an International Financial Services Centre (IFSC). The IFSC should hold a valid certificate of registration granted under the International Financial Services Centres Authority (Banking) Regulations, 2020.
Second, such a contract is not entered into by the non-resident through or on behalf of its permanent establishment in India. The offshore unit (a banking branch located in an IFSC) would have to ensure that the terms are fulfilled.
A non-deliverable forward contract would mean a contract for the difference between an exchange rate agreed before and the actual spot rate at the time of maturity. The spot rate would be taken as the domestic rate or a market-determined rate and the contract settled with a single payment in foreign currency.