Tax on income from units purchased in foreign currency or capital gains arising from their transfer
[Section-208 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 208(1) of Income Tax Act 2025
208(1) The income-tax payable on the total income of an assessee, being an overseas financial organisation (herein referred to as Offshore Fund), which includes income specified in column B of the Table below, shall be the aggregate of the amount specified in column C thereof.
Table
| Income | Income-tax payable |
|---|---|
| Income received in respect of units purchased in foreign currency. | 10% |
| Long-term capital gains arising from the transfer of units purchased in foreign currency. | 12.5% |
| Total income as reduced by income referred to in against serial numbers 1 and 2. | Income-tax chargeable on such income. |
Section 208(2) of Income Tax Act 2025
208(2) Where the gross total income of the Offshore Fund—
- 208(2)(a) consists only of income from units or income by way of long-term capital gains arising from the transfer of units, or both, no deduction shall be allowed to the assessee under sections 26 to 61 or section 93(1)(a) and (e) or under Chapter VIII;
- 208(2)(b) includes any income referred to in clause (a),––
- (i) the gross total income shall be reduced by such income; and
- (ii) the deduction under Chapter VIII shall be allowed as if the gross total income so reduced were the gross total income of the assessee.
Section 208(3) of Income Tax Act 2025
208(3) In this section,––
- 208(3)(a) “overseas financial organisation” means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India,––
- (i) which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified in Schedule VII (Table: Sl. No. 20 or 21); and
- (ii) such arrangement is approved by the Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992, for this purpose;
- 208(3)(b) “public financial institution” shall have the same meaning as assigned to it in section 2(72) of the Companies Act, 2013;
- 208(3)(c) “unit” means unit of,––
- (i) a mutual fund specified in Schedule VII (Table: Sl. No. 20) or (Table: Sl. No. 20 or 21); or
- (ii) the Unit Trust of India.
FAQs on Section 208 of Income Tax Act 2025
Who is liable to pay tax under Section 208?
An overseas financial organisation (Offshore Fund) is liable to pay tax under this section if its total income includes income from units purchased in foreign currency or capital gains from their transfer.
What is the rate of tax on income received from units purchased in foreign currency?
The tax rate is 10% on such income.
What is the tax rate on long-term capital gains arising from the transfer of units purchased in foreign currency?
The tax rate is 12.5% on such long-term capital gains.
How is the total income of an Offshore Fund taxed under this section?
The tax is computed by aggregating:
(a) 10% on income received from units purchased in foreign currency;
(b) 12.5% on long-term capital gains from the transfer of such units; and
(c) the normal tax rate on the remaining total income, if any.
Are deductions allowed under Sections 26 to 61, 93(1)(a)/(e), or Chapter VIII for such income?
No deduction is allowed if the gross total income consists only of income from units and long-term capital gains from their transfer.
What if the Offshore Fund’s gross total income includes both such income and other income?
The gross total income must be reduced by the income from units and capital gains. Then, deductions under Chapter VIII are allowed on the reduced total income.
What is an ‘overseas financial organisation’ as per this section?
It refers to any fund, institution, association or body (incorporated or not), established under foreign law, having an investment arrangement in India approved by SEBI with a public sector bank, public financial institution, or mutual fund.
What qualifies as a ‘unit’ under Section 208?
A unit means a unit of a mutual fund specified in Schedule VII (Sl. No. 20 or 21) or of the Unit Trust of India.
Does the income need to be received in Indian currency?
No, the income referred must be received in respect of units purchased in foreign currency.
Is SEBI approval mandatory for the investment arrangement?
Yes, SEBI approval is mandatory for the arrangement to qualify under this section.
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