Rule 140 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 140 of the Income-tax Rules, 2026 determines the specified fund income eligible for section 210 concessional rates — A = B × C for capital gains and X = Y × Z for securities income, reported in Form No. 69.
The two formulas
| Income | Formula | Components |
|---|---|---|
| Short-term or long-term capital gains referred to in section 210(1) | A = B × C | B = income arising from transfer of the security. C = ratio of the 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 security to the date of transfer |
| Income received in respect of securities referred to in section 210(1) | X = Y × Z | Y = income received in respect of securities. Z = ratio of assets under management held by non-resident unit holders to total assets under management, as on the date of receipt |
In both, the non-resident is one other than the permanent establishment of a non-resident in India. The 1962 parallel is rule 21AJ.
Rule 140 repeats the design of rule 139 in a two-formula form. Capital gains take a ratio averaged daily across the holding period of the security; income received takes a ratio read on the date of receipt. The rationale is the same — a gain accrues over the period the asset was held, so the investor base over that period is what matters; a receipt arises on a day, so the investor base on that day is what matters.
How rule 140 differs from rule 139
| Point | Rule 139 | Rule 140 |
|---|---|---|
| Benefit | Exemption under section 11(1) read with Schedule VI | Concessional tax rates under section 210 |
| Streams | Four — A, B, C and D, each with its own ratio | Two — capital gains, and income received in respect of securities |
| Form | 68, electronically under digital signature | 69 |
| Condition | No exemption unless the statement is filed | No concessional rates unless the statement is filed |
A specified fund with both exempt income and concessionally taxed income therefore files two separate annual statements, on the same due date, built from the same daily assets under management data.
The filing condition
Sub-rule (3): the specified fund shall furnish an annual statement of income eligible for concessional taxation in Form No. 69, on or before the due date specified under section 263(1)(c).
Sub-rule (4): the income of a specified fund referred to in section 210(1), attributable to the units held by such a non-resident, shall not be eligible for tax rates specified in section 210 unless such fund complies with sub-rule (3).
The consequence in rule 140 is precisely drawn: the income does not become exempt or disappear — it simply loses the concessional rates in section 210 and is taxed at whatever rate would otherwise apply. That is a different and often larger exposure than the rule 139 position, because the income concerned is taxable either way and only the rate is at stake.
The definitions
| Term | Source |
|---|---|
| Assets under management | The closing balance of the value of assets or investments of the specified fund as on a particular date |
| Permanent establishment | Section 173(c) |
| Securities | Schedule VI |
| Specified fund | Schedule VI |
| Units | Schedule VI |
Note that rule 140 takes "specified fund" from Note 1(g)(i) specifically, whereas rule 139 takes it from Note 1(g) as a whole and rule 143 from Note 1(g)(ii). The narrowing is deliberate: rule 140 addresses the fund itself, and rule 143 the investment division of an offshore banking unit.
Worked example
| Facts | Position under rule 140 |
|---|---|
| Long-term gain of Rs 25 crore on a security held for 20 months | B = Rs 25 crore |
| Daily non-resident AUM aggregated over those 20 months is 68% of the daily total | C = 0.68; A = Rs 17 crore |
| Non-resident share was 85% at the date of transfer | Using 85% would overstate A — C is the holding-period average |
| Dividend of Rs 3 crore received on 14 November | Z read on 14 November; X = 3 crore × Z |
| Units held by an Indian permanent establishment of a foreign investor | Excluded from the non-resident numerator |
| Form No. 69 not filed by the due date | Income loses the section 210 rates |
| Fund also has Schedule VI exempt income | Form No. 68 as well, under rule 139 |
Compliance checklist
- Split section 210(1) income into capital gains and income received in respect of securities.
- Use A = B × C for gains, with C averaged daily over the holding period.
- Use X = Y × Z for receipts, with Z read on the date of receipt.
- Build both ratios from daily closing assets under management.
- Exclude units held by a permanent establishment under section 173(c).
- File Form No. 69 by the section 263(1)(c) due date.
- File Form No. 68 separately where exempt income also arises.
- Retain the acquisition and transfer dates of every security, since they set the ratio window.
Common mistakes
- Using the transfer-date ratio for a capital gain.
- Using a holding-period average for income received.
- Filing only Form No. 68 where concessional rates are also claimed.
- Including permanent establishment units in the non-resident share.
- Assuming late filing costs nothing because the income remains taxable.