Rule 139 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 139 of the Income-tax Rules, 2026 computes a specified fund's exempt income attributable to non-resident unit holders as (A×r1)+(B×r2)+(C×r3)+(D×r4), conditional on filing Form No. 68.
The four income streams in rule 139
| Term | Income | Schedule VI |
|---|---|---|
| A | Income from transfer of a capital asset referred to in section 70(1)(r), on a recognised stock exchange located in an International Financial Services Centre, where the consideration is paid or payable in convertible foreign exchange | Table: Sl. No. 1 |
| B | Income from transfer of securities other than shares in a company resident in India | Table: Sl. No. 2 |
| C | Income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India), where such income otherwise does not accrue or arise in India | Table: Sl. No. 3 |
| D | Income from a securitisation trust chargeable under the head "Profits and gains of business or profession" | Table: Sl. No. 4 |
Throughout rule 139, the non-resident whose units matter is one not being the permanent establishment of a non-resident in India. The 1962 parallel is rule 21AI.
The four ratios rule 139 applies
| Ratio | Measured | Period |
|---|---|---|
| r1 | Aggregate of daily assets under management held by non-resident unit holders to the aggregate of daily total assets under management | From the date of acquisition of the capital asset referred to in section 70(1)(r) to the date of its transfer |
| r2 | The same daily-aggregate measure | From the date of acquisition of the security (other than shares in a company resident in India) to the date of its transfer |
| r3 | Assets under management held by non-resident unit holders to total assets under management | As on the date of receipt of the income from securities issued by a non-resident |
| r4 | The same point-in-time measure | As on the date of receipt of the income from the securitisation trust |
This is the point that decides whether a rule 139 computation is right. r1 and r2 attach to capital gains, so they average the non-resident share day by day across the whole holding period — an investor base that changed during the holding is reflected proportionately. r3 and r4 attach to income received, so they take a single reading on the date of receipt. Using a year-end ratio for all four, or a receipt-date ratio for a capital gain, produces a materially different answer.
Sub-rule (4)(a) defines "assets under management" as the closing balance of the value of assets or investments of the specified fund as on a particular date — so the daily aggregates in r1 and r2 are built from daily closing balances, which is a data requirement the fund's administrator has to be set up for in advance.
The filing condition in rule 139
Sub-rule (2): the specified fund shall furnish an annual statement of exempt income in Form No. 68 electronically under digital signature on or before the due date specified under section 263(1)(c) and duly verified in the manner indicated therein.
Sub-rule (3): the income attributable to units held by a non-resident shall not be exempt under section 11(1) read with Schedule VI unless the specified fund complies with sub-rule (2).
Sub-rule (3) makes the whole exemption turn on a fund-level compliance. A non-resident unit holder has no way to preserve the exemption if the fund fails to file Form No. 68 on time, electronically, under digital signature and duly verified. The same conditionality reappears in rule 140(4) for the concessional rates and in rule 144(3) for the residence condition — three separate filings, each of which can independently undo the benefit.
The definitions rule 139 supplies
| Term | Source |
|---|---|
| Assets under management | The closing balance of the value of assets or investments of the specified fund as on a particular date |
| International Financial Service Centre | Section 2(q) of the Special Economic Zones Act, 2005 |
| Permanent establishment, securities, specified fund, unit | Note 1 below Schedule VI of the Act |
Worked example
| Input | Treatment under rule 139 |
|---|---|
| Gain of Rs 40 crore on an IFSC exchange transfer settled in convertible foreign exchange | A, multiplied by r1 over the holding period |
| Non-resident share averaged 72% daily over that period | Rs 28.8 crore exempt from that stream |
| Same gain, non-resident share 90% at the year end | Using 90% would overstate the exemption — r1 is the daily average |
| Interest of Rs 5 crore from securities issued by a non-resident, received on 12 August | C × r3, the ratio read on 12 August |
| Transfer of shares in an Indian resident company | Not within B |
| Consideration on the IFSC exchange settled in rupees | Not within A |
| Form No. 68 filed after the section 263(1)(c) due date | Exemption not available for the year |
Compliance checklist
- Segregate income into the four streams A to D before applying any ratio.
- Confirm stream A's transfer was on an IFSC exchange with convertible foreign exchange consideration.
- Exclude shares in a company resident in India from stream B.
- Capture daily closing assets under management, split between resident and non-resident holders.
- Compute r1 and r2 across the holding period of each asset.
- Compute r3 and r4 on the date of receipt of each income.
- Exclude units held by a permanent establishment of a non-resident in India.
- File Form No. 68 electronically under digital signature by the section 263(1)(c) due date.
- Retain the daily AUM data supporting every ratio.
Common mistakes
- Using one ratio for all four streams.
- Reading r1 or r2 at the year end instead of averaging daily over the holding period.
- Counting a permanent establishment as a non-resident unit holder.
- Including Indian company shares in stream B.
- Filing Form No. 68 late and losing the exemption entirely.