Section 210 of the Income-tax Act, 2025 — Tax on Income of Foreign Institutional Investors (FIIs) from Securities and Capital Gains

In plain language

Section 210 of the Income-tax Act, 2025 (effective from 1 April 2026, i.e., Tax Year 2026-27 onwards) lays down the special tax rates for Foreign Institutional Investors (FIIs/FPIs) and "specified funds" on their income from securities and on capital gains arising when those securities are transferred. It is the direct successor of Section 115AD of the Income-tax Act, 1961, re-enacted in a cleaner, table-based format. Note: this section is often loosely described as "tax on gains arising from transfer", but its verified statutory heading is "Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer."

What Section 210 actually does

Instead of taxing an FII's Indian investment income at the normal slab or corporate rates, Section 210(1) prescribes a schedular, flat-rate regime. The tax payable is the aggregate of tax computed at the special rate on each specified stream of income, plus tax at normal "rates in force" on the balance income. The specified streams are:

• Income from securities (interest, etc., other than units covered by Section 208 and dividends already taxed elsewhere) — 20% for an FII, and a concessional 10% for a specified fund;
• Short-term capital gains on securities not covered by Section 196 — 30%;
• Short-term capital gains covered by Section 196 (STT-paid listed equity shares, equity-oriented mutual fund units, units of a business trust — old Section 111A) — 20%;
• Long-term capital gains on securities not covered by Section 198 — 12.5%;
• Long-term capital gains covered by Section 198 (old Section 112A: STT-paid listed equity/equity MF/business trust units) — 12.5% on the amount exceeding ₹1,25,000 in a tax year.

Surcharge and health & education cess apply in addition to these base rates.

Who it applies to

• Foreign Institutional Investors (FIIs) — investors notified by the Central Government; in practice this covers SEBI-registered Foreign Portfolio Investors (FPIs) investing in Indian securities.
• Specified funds — broadly, Category III Alternative Investment Funds located in an International Financial Services Centre (IFSC, e.g., GIFT City) meeting the conditions of Schedule VI. Per Section 210(2), the concessional regime applies to a specified fund only to the extent its income is attributable to units held by non-residents (other than a non-resident with a permanent establishment in India).
• Investment divisions of offshore banking units in an IFSC also get access to this regime under Section 210(3), subject to Schedule III and Schedule VI conditions.

It does not apply to resident investors or ordinary NRIs — residents use Sections 196–198, while NRIs may use Section 214 or the general capital gains provisions.

Key conditions and restrictions

• No Chapter VIII deductions on special-rate income: under Section 210(4), if the gross total income consists only of securities income, no deductions (the 2025 Act's equivalent of Chapter VI-A) are allowed; where there is mixed income, deductions are allowed only against the balance (normal-rate) income.
• No indexation: the cost-inflation indexation benefit is not available for capital gains computed under this regime.
• No basic exemption set-off: the flat rates apply from the first rupee of the special-rate income (except the ₹1,25,000 threshold for Section 198 LTCG).
• Loss carry-forward limitation: Section 210(5) makes Section 72(6) inapplicable to the capital gains streams — a technical restriction on how losses interact with these gains.
• "Securities" takes its meaning from Section 2(h) of the Securities Contracts (Regulation) Act, 1956.

How it interacts with related sections

Section 210 imports the STT-linked equity regimes: gains that would qualify under Section 196 (old 111A) are taxed to FIIs at 20%, and gains under Section 198 (old 112A) at 12.5% beyond ₹1.25 lakh — mirroring the rates residents pay after the Finance (No. 2) Act, 2024 rate rationalisation. Units taxed under Section 208 (offshore funds — old 115AB) are carved out of the "income from securities" head. Treaty benefits under India's DTAAs can still override Section 210 where more beneficial.

Practical implications

• FPIs pay a higher 30% rate on short-term gains from debt securities and derivatives (non-Section 196 assets) versus 20% on STT-paid equity STCG — asset classification matters enormously.
• GIFT City Category III AIFs enjoy a 10% rate on securities income, a key reason funds are relocating to the IFSC.
• Since deductions and indexation are blocked, an FII's Indian tax cost is largely a straight percentage of each income stream, making withholding and advance-tax planning simpler but leaving little room for optimisation outside treaty relief.