Rules 51 and 143 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 51 adds one condition that an original fund must meet when it transfers a capital asset to a resultant fund that is a Category III Alternative Investment Fund: resident participation must not exceed 5% of the corpus. Rule 143 gives the formula, the expenditure bar and the annual statement for the income of a specified fund that is the investment division of an offshore banking unit. This article reads both rules as per the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026. Later notifications should be checked.
Rule 51 is made for section 70(2) of the Income-tax Act, 2025 and prints a single ceiling: aggregate participation or investment by persons resident in India must not exceed 5% of the corpus of the original fund at the time of the transfer. Rule 143 is made for section 210(3): the income is computed as A + B + C + D + E, expenditure on that income cannot be deducted from any other income, and the investment division must furnish Form 70 by the due date in section 263(1)(c) or the section 210(1) rates are not available.
Where the two rules come from
Rule 51 is headed "Other conditions required to be fulfilled by the original fund". It is made for section 70(2) of the Income-tax Act, 2025, in the row that deals with a transfer by an original fund to a resultant fund. Section 70 lists transfers that are not regarded as a transfer for tax on capital gains; read the section itself in our article on section 70 and transactions not regarded as transfer. The rule borrows its two key terms, "original fund" and "resultant fund", from that section.
Rule 143 is made for section 210(3). Section 210 deals with the tax on income of a specified fund or a Foreign Institutional Investor from securities and from capital gains on their transfer; the full text is explained in our article on section 210 and the tax on Foreign Institutional Investors. Rule 143 sits in the group of rules on specified funds, which also includes the rule on concessional-rate income explained in rule 140.
Rule 51: the 5% ceiling on resident participation
Rule 51(1) applies "in a case where a capital asset is transferred to a resultant fund being a Category III Alternative Investment Fund". In that case the original fund must meet one condition: the aggregate participation or investment in the original fund, either directly or indirectly, by persons resident in India must not exceed 5% of the corpus of that fund at the time of the transfer.
Three features of the wording matter. Direct and indirect holdings both count. The measure is aggregate: all resident persons are added together, and the rule sets no per-person limit. The base is the corpus of the original fund, tested at the time of the transfer.
Rule 51(2) says that "original fund" and "resultant fund" carry the meanings given in section 70(2). The rule does not repeat those meanings, and this article does not either; they are in the Act.
The rule names no form and no due date, and it does not say how the 5% is to be measured or evidenced. It also states no consequence of failing the condition in its own words; the effect on the transfer is to be read from section 70 itself. Fund managers weighing a restructuring can take structured tax planning advice before the transfer date, because the test is made at that date.
Example. Harbor Ridge Opportunities Fund (invented) is an original fund that transfers a capital asset to a resultant fund that is a Category III Alternative Investment Fund. On the date of the transfer, resident persons hold, directly and through intermediaries, 4% of its corpus. The condition in rule 51(1) is met. If the aggregate had been 6%, the condition would not have been met.
Rule 143: income of an investment division of an offshore banking unit
Rule 143 is headed "Determination of income of a specified fund attributable to investment division of an offshore banking unit under section 210(3)". Sub-rule (1) gives a formula, A + B + C + D + E, where each letter is a type of income referred to in the Table in section 210(1).
| Letter | Income covered | Reference to section 210(1) |
|---|---|---|
| A | Income from securities held by the eligible investment division | Table, serial number 1 |
| B | Short-term capital gain on transfer of a security, other than one referred to in section 196, held by the division | Table, serial number 2 |
| C | Short-term capital gain on transfer of a security referred to in section 196, held by the division | Table, serial number 3 |
| D | Long-term capital gain on transfer of a security, other than one referred to in section 198, held by the division | Table, serial number 4 |
| E | Long-term capital gain on transfer of a security referred to in section 198, held by the division | Table, serial number 5 |
Each letter takes the income "accrued or arisen to, or received by the eligible investment division". The rule prints no rates; those are in section 210(1).
Sub-rule (2): the expenditure bar
Any expenditure incurred in relation to the income in A, B, C, D or E cannot be deducted from any other income under any provision of the Act. The bar applies even if the expenditure was not allowed as a deduction from A, B, C, D or E themselves. In practice, expenditure linked to this income stays within this income.
Sub-rule (3): Form 70
The eligible investment division must furnish an annual statement of income, eligible for taxation under section 210(3), in Form 70 on or before the due date specified under section 263(1)(c). The rule prints no other time limit.
Sub-rule (4): the consequence
The income of an eligible investment division referred to in section 210(1) (serial numbers 1 to 5 of the Table) is not eligible for the tax rates specified there unless the division meets sub-rule (3). So the filing of Form 70 by the due date is a condition for the concessional treatment, not a formality.
Sub-rule (5): meanings
| Term | Meaning given by the rule |
|---|---|
| Eligible investment division | An investment division of an offshore banking unit that fulfils the conditions in Schedule VI, Note 1(g)(ii)(A) and (B) to the Act |
| Investment division of an offshore banking unit | The meaning in Schedule VI, Note 1(b) to the Act |
| Securities | The meaning in section 2(h) of the Securities Contracts (Regulation) Act, 1956 |
| Specified fund | The meaning in Schedule VI, Note 1(g)(ii) to the Act |
The Securities Contracts (Regulation) Act, 1956 is a separate law; check its current text.
Example. Lakeshore IFSC Investment Division (invented) is an eligible investment division. In a tax year it earns interest on securities (A) and a long-term capital gain on a security referred to in section 198 (E). It computes its income by the formula as A + E. It incurs administrative expenditure in relation to those two items. Under sub-rule (2), that expenditure cannot be set against any other income of the same assessee. If it does not furnish Form 70 by the due date in section 263(1)(c), sub-rule (4) denies it the section 210(1) rates on both items.
Who is affected
- Original funds moving assets to a Category III Alternative Investment Fund, and their unit holders.
- Investment divisions of offshore banking units that are specified funds, and the managers who prepare their annual statement.
Need help with fund and cross-border structuring?
If you are planning a fund restructuring or an offshore banking unit's investment division and want the conditions in these rules tested against your facts, our tax planning advisory team can review the structure and the annual statement timeline with you.
Key takeaways
- Rule 51 prints one condition: resident participation, direct or indirect, of not more than 5% of the corpus at the time of transfer.
- Rule 51 takes the meaning of "original fund" and "resultant fund" from section 70(2); it names no form.
- Rule 143 computes income as A + B + C + D + E, each letter tied to a row of the Table in section 210(1).
- Expenditure relating to A to E cannot be deducted from any other income.
- Form 70 by the due date in section 263(1)(c) is a condition for the section 210(1) rates.
Read next
- Rule 52: exchange rate for non-resident capital gains
- Rules 141 and 142: investment division of an offshore banking unit
- Rules 65 and 67: rent paid declaration in Form 31 and Special Economic Zone particulars in Form 33
- Rules 311, 312, 314, 325, 326 and 328: winding up and amendment of funds
Disclaimer: Based on the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026, as consulted on 2 October 2026. It explains the words of the rules and forms only; later notifications, the forms and utilities on the e-filing portal, circulars and the way the tax authorities apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.