CBDT FAQs on Finance Bill 2025 – Key Tax Amendments Explained

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Overview of Key Amendments in Finance Bill 2025

• Indirect investments by Indian residents in offshore funds are now excluded from the 5% limit, reducing compliance burdens.
• Retail Schemes & ETFs in IFSCs now qualify for tax exemptions if they meet IFSCA regulations.
• Retail Schemes & ETFs can now be relocated tax-free to IFSCs without meeting Section 10(4D) conditions.
• A new presumptive taxation scheme was introduced for foreign technology providers serving India’s electronics manufacturing sector. 25% of total receipts will be deemed taxable.
• Expanded tax exemptions for non-residents trading in offshore derivative instruments & OTC derivatives in IFSCs.
• Alternative Investment Funds (AIFs) are now classified as capital assets, clarifying their tax treatment.
• Life insurance policies issued by IFSC insurance offices now qualify for tax exemption, correcting the previous reference to intermediaries.
• Tax authorities will now assess undisclosed income instead of total income, strengthening the focus on tax evasion.
• Clarifies the distinction between disclosed & undisclosed income, ensuring only unreported earnings are reassessed.
• Time limit for block assessments set at 12 months, extendable to 13 months in special cases.
• Undisclosed income from block assessments will now be taxed at 60%.
• Tax authorities can now check for inconsistencies between current and previous years' returns. 

Amendment to Section 9A – Investment Fund Participation Rules

The Finance Bill 2025 introduces key amendments to Section 9A of the Income-tax Act, 1961, aimed at reducing compliance burdens and facilitating offshore fund management in India.

• Previously, Indian residents could not invest more than 5% (directly or indirectly) in an eligible investment fund. However, the Government Amendment now excludes indirect investments from this limit, simplifying compliance requirements.
• Additionally, Section 9A(8A) allows the Central Government to modify or relax conditions related to investment funds and fund managers in International Financial Services Centres (IFSCs).

This change enhances India's attractiveness as a global financial hub, encouraging fund managers to relocate their operations to India.

Amendment to Section 44BBD – Presumptive Taxation for Non-Residents

The Finance Bill 2025 introduces Section 44BBD, which provides a presumptive taxation scheme for non-residents supplying technology and services to electronics manufacturing facilities in India. Under this provision, 25% of the total amount received or payable to the non-resident will be deemed as taxable profits and gains.

Key Amendment:

The Government  clarifies that the following provisions will not apply to income covered under Section 44BBD:

• Permanent establishment taxation (Section 44DA)
• Taxation of royalties and fees for technical services (Section 115A)

Amendment to Section 10(10D) – Tax Exemption for Life Insurance Policies

The Finance Bill 2025 amended Section 10(10D) of the Income-tax Act, 1961 to provide tax exemption on proceeds from life insurance policies issued by IFSC insurance intermediary offices, without any condition on the maximum premium payable. However, an  Amendment was introduced to correct the reference from "IFSC insurance intermediary offices" to "IFSC insurance offices", ensuring that the exemption applies to the correct entities issuing such policies.

Amendment to Section 10(4D) – Tax Exemptions for Specified Funds

Section 10(4D) of the Income-tax Act, 1961 provides tax exemption on income earned by a ‘specified fund’, subject to fulfilling certain conditions.

Proposed Amendment:

• The exemption will now be available to a specified fund that has been certified as a Retail Scheme or an Exchange-Traded Fund (ETF).
• The fund must comply with the IFSCA (International Financial Services Centres Authority) regulations to qualify for tax benefits.

Amendment to Section 47(viiad) – Inclusion of Retail Schemes and ETFs in the Relocation Regime

Section 47(viiad) of the Income-tax Act, 1961 defines a ‘resultant fund’ for the purpose of tax-neutral relocation of investment funds.

Proposed Amendment in Finance Bill 2025:

• Expands the definition of ‘resultant fund’ to include Retail Schemes and Exchange-Traded Funds (ETFs) regulated under the IFSCA (Fund Management) Regulations, 2022.
• Tax-neutral relocation is applicable only if these funds meet the conditions of Section 10(4D).
• Removes the requirement for Retail Schemes and ETFs to comply with Section 10(4D) to qualify as a ‘resultant fund’.
• Now, any Retail Scheme or ETF granted a certificate by IFSCA qualifies as a ‘resultant fund’ under Section 47(viiad). 

Amendment to Section 10(4E) – Tax Exemptions for Non-Residents in IFSCs

Section 10(4E) of the Income-tax Act, 1961 provides tax exemptions for specific financial transactions involving non-residents, including:

• Transfer of non-deliverable forward contracts, offshore derivative instruments, and over-the-counter (OTC) derivatives.
• Distribution of income on offshore derivative instruments.

Amendment in Finance Bill 2025:

Previously, the tax exemption under Section 10(4E) was available only for derivative transactions conducted by non-residents with Offshore Banking Units.

• The Finance Bill 2025 extends this exemption to transactions with Foreign Portfolio Investors (FPIs) operating in an IFSC.
• The exemption is further extended to include the distribution of income on OTC derivatives, where contracts are entered into by a non-resident with either Overseas Banking Units or FPIs in an IFSC.

Amendment to Section 2(14) – Definition of ‘Capital Asset’

Section 2(14) of the Income-tax Act, 1961 defines ‘capital assets’ for taxation purposes.

Amendment in Finance Bill 2025:

• Expands the definition of ‘capital asset’ to include securities held by investment funds referred to in Section 115UB, specifically:
• Category I & Category II Alternative Investment Funds (AIFs) regulated under the SEBI (AIF) Regulations, 2012.

The definition is further expanded to include securities held by Category I & II AIFs, where investments are made under:

• SEBI regulations or
• IFSCA regulations.

Amendments to Chapter XIV-B – Assessment of Undisclosed Income

Chapter XIV-B of the Income-tax Act, 1961 deals with the assessment of total income in cases involving search or requisition by tax authorities.

Key Amendment in Finance Bill 2025:

• Replaces the concept of “assessment of total income” with the assessment of “undisclosed income”.
• Focus shifts to identifying and taxing income that has not been disclosed, rather than reassessing total income.
• Pending proceedings for any year within the block period will be combined with the block assessment.

How the Assessment Will Work Now:

The Assessing Officer (AO) can determine undisclosed income based on:

• Evidence found during a search or requisition.
• Any other relevant material or information available to the AO.

Regular income will continue to be determined based on entries recorded in the books of accounts before the search.

Amendments to Chapter XIV-B – Focus on Undisclosed Income

The Finance Bill 2025 brings a major shift in tax assessment under Chapter XIV-B of the Income-tax Act, 1961, replacing the concept of total income assessment with undisclosed income assessment. This change aims to ensure that tax authorities focus specifically on identifying income that has not been disclosed, rather than reassessing already reported income. Any pending proceedings within the block period will now be combined with the block assessment, allowing the Assessing Officer (AO) to compute undisclosed income based on evidence found during a search or requisition and other relevant material.

Changes to Section 158BA and Section 158BB

To support this transition, Section 158BA has been amended to replace the term "total income" with "total undisclosed income", ensuring clarity in tax treatment. Additionally, Section 158BB now provides a clear distinction between disclosed and undisclosed income. The total undisclosed income for a block period will include both income declared in a block return and income determined by the AO. However, certain incomes, such as those already assessed under Sections 143, 144, 147, or 153A, will not be treated as undisclosed income.

Time Limit for Block Assessments – Section 158BE

The amendment also modifies the time limit for completing block assessments under Section 158BE. The assessment must now be completed within 12 months from the end of the quarter in which the last search authorisation was executed. If an extension is granted under Section 158BC, the time limit extends to 13 months. This change ensures that block assessments are completed in a timely manner, reducing uncertainty for taxpayers.

Tax Rate on Undisclosed Income – Section 113

Another key amendment relates to Section 113, which now specifies that undisclosed income from the block period will be taxed at a 60% rate. This measure strengthens tax enforcement by penalising hidden income while keeping tax rates for disclosed income unchanged.

Amendments to Section 143 – Enhanced Return Processing

The Finance Bill 2025 introduces amendments to Section 143(1) of the Income-tax Act, 1961, which governs the processing of income-tax returns. Currently, this section allows for adjustments related to arithmetical errors or incorrect claims that are apparent from the return itself.

Key Amendment in Finance Bill 2025

The amendment now enables income-tax authorities to check for inconsistencies between the current year’s return and returns filed in preceding years. This means that any discrepancies in reported income, deductions, or tax credits over multiple assessment years may be flagged for review.

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