Rule 209 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 209 of the Income-tax Rules, 2026 lets a foreign bank or insurer branch, and any other person carrying on business in India through a branch, apply in Form No. 126 for a section 395(1) certificate to receive interest and other sums without deduction of tax.
Who may apply
Sub-rule (1) of rule 209 works off a three-column table: the person, the conditions he must satisfy, and the nature of income or sum the certificate can cover. Anyone entitled to receive interest or another sum of the nature specified in section 393(2) and falling in the table may apply in Form No. 126. The 1962 parallel is rule 29B.
| Sl. No. | Person | Nature of income or sum covered |
|---|---|---|
| 1 | A banking company or an insurer (as defined in section 2(9)(d) of the Insurance Act, 1938) which is not a domestic company and which carries on operations in India through a branch | Any income by way of interest, not being interest on securities (other than interest payable on securities referred to in section 393(4) ), or any other sum, not being dividends |
| 2 | Any person other than the person at Sl. No. 1 who carries on a business or profession in India through a branch | Any sum not being interest or dividends |
The difference between the two rows of rule 209 is easy to miss and decisive. A foreign bank or insurer branch can obtain a certificate covering interest — that is the point of the entry. Every other branch can only obtain one for "any sum not being interest or dividends". So an ordinary foreign company's Indian branch cannot use rule 209 to stop TDS on its interest income, however long it has traded here and however large its assets. Dividends are outside both rows.
The conditions
Column C of Sl. No. 1 sets three conditions, and Sl. No. 2 imports all three and adds two more:
| Condition | Applies to | Test under rule 209 |
|---|---|---|
| Return history | Both | Regularly assessed to income-tax in India and has furnished returns of income for the last five tax years for which such returns became due on or before the date of the application |
| No default | Both | Not in default or deemed to be in default in respect of any tax — including advance tax and tax payable under section 266 — interest, penalty, fine or any other sum payable under the Act |
| Own account | Both | The interest or other sum is receivable by the branches on their own account and not on behalf of the head office or any branch situated outside India, or any other person |
| Five-year presence | Sl. No. 2 only | Carrying on the business or profession in India continuously for not less than five years immediately preceding the date of the application |
| Fixed assets | Sl. No. 2 only | The value of fixed assets in India of that business or profession as shown in his books of account for the tax year ended immediately before the application date — or, if those accounts are not yet made up, the preceding tax year — exceeds fifty lakh rupees |
The return-history and no-default conditions in rule 209 are compliance filters. The third is different: it goes to who the income really belongs to. A branch collecting interest that is ultimately the head office's, or another group entity's, fails the condition even with a spotless filing record. This is the condition an Assessing Officer will probe, and it is the one that should be documented in the branch's books before Form No. 126 is filed.
Two drafting details worth noting in rule 209. The five-year return condition is limited to returns that became due on or before the application date, so a year whose due date has not arrived does not count against the applicant. And the fixed-asset test has a built-in fallback to the preceding tax year where the latest accounts are not made up — a real concession for a branch applying early in the year.
Validity and renewal
| Matter | Provision in rule 209 |
|---|---|
| Who grants | The Assessing Officer, under section 395(1) |
| Validity | The tax year specified in the certificate — sub-rule (2) |
| Cancellation | By the Assessing Officer at any time before the expiry of that tax year |
| Fresh application | After expiry, or within three months before expiry — sub-rule (3) |
The three-month renewal window in sub-rule (3) of rule 209 is the whole of the advance planning the rule allows. An application filed four months out is premature; one filed after expiry leaves a gap during which the payer must deduct.
Worked example
| Facts | Position under rule 209 |
|---|---|
| Foreign bank's Indian branch, five years of returns filed, no arrears | Eligible under Sl. No. 1 for a certificate covering interest |
| Same branch collects interest for its Singapore head office | Fails the "own account" condition |
| Foreign insurer's branch, one year's return not yet due | That year does not count against it — the test is returns that became due |
| Branch has an unpaid penalty demand | Fails the no-default condition |
| Foreign manufacturer's branch, six years in India, fixed assets Rs 80 lakh | Eligible under Sl. No. 2 — but only for sums other than interest |
| Same branch wants relief on its interest income | Not available — Sl. No. 2 excludes interest |
| Branch four years old, fixed assets Rs 2 crore | Fails the five-year continuous presence test |
| Branch six years old, fixed assets Rs 45 lakh | Fails the fifty lakh rupees test |
| Latest year's accounts not made up at the application date | Use the preceding tax year's books for the asset test |
| Certificate expires 31 March; application made 15 January | Within the three-month renewal window |
Compliance checklist
- Decide which row of the table the applicant falls in — it determines what the certificate can cover.
- Confirm the applicant is not a domestic company if relying on Sl. No. 1.
- Check five tax years of returns, counting only years whose due date has passed.
- Clear every tax, advance tax, section 266 tax, interest, penalty and fine before applying.
- Document that the income is receivable by the branch on its own account.
- For Sl. No. 2, evidence five years of continuous Indian operations.
- Take the fixed asset figure from the books, using the fallback year where accounts are not made up.
- Diarise the three-month renewal window before the certificate's tax year ends.
Common mistakes
- Applying under Sl. No. 2 for relief on interest, which that row excludes.
- Counting a year whose return is not yet due as a missing return.
- Ignoring an advance tax shortfall, which is expressly within the default condition.
- Overlooking that dividends are outside rule 209 for both classes.
- Using a group fixed-asset figure instead of the Indian branch's books.
- Applying too early or after expiry, outside the three-month window.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 209 is rule 29B, given for tracing only. Section references are to the Income-tax Act, 2025. Verify the current text before applying.