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Section 210 Income Tax Act 2025: How Are FIIs and Specified Funds Taxed?

Section 210 sets out special tax rates for income from securities and capital gains arising from their transfer when earned by a Foreign Institutional Investor (FII) or a specified fund. It also governs qualifying income attribution and deductions.

Legal update: This guide explains Section 210 in the consolidated Income-tax Act, 2025, as amended by the Finance Act, 2026. Subsequent legislative changes, including the 2026 measures concerning government securities, must be checked separately before applying these rates to any particular transaction.

What does Section 210 cover?

Section 210(1) applies to a specified fund or a notified Foreign Institutional Investor whose total income includes the classes of securities income and capital gains identified in its statutory table. Tax is computed separately on those classes at the applicable special rates; remaining income is taxed at rates in force. The provision does not automatically make all income of every foreign investor taxable at one uniform rate.

Tax rates under Section 210(1)

Nature of income	Rate
Income in respect of securities, excluding units covered by Section 208, earned by an FII	20%
Same securities income earned by a specified fund	10%
Short-term capital gains other than gains under Section 196	30%
Short-term capital gains referred to in Section 196	20%
Long-term capital gains other than gains under Section 198	12.5%
Long-term capital gains under Section 198, to the extent exceeding Rs. 1,25,000	12.5%
Balance of total income	Rates in force

These are the rates appearing in Section 210(1), before any applicable surcharge and health and education cess. The Section 196 and Section 198 categories are subject to their respective statutory conditions. Treaty relief, exemptions and subsequent amendments require separate consideration.

Specified funds: Sections 210(2) and 210(3)

Under Section 210(2), a specified fund receives the special treatment only to the extent its income is attributable, as prescribed, to units held by non-residents other than a permanent establishment of such non-residents in India.

Section 210(3) separately addresses a specified fund that is an investment division of an offshore banking unit. It applies the provision to income attributable to the relevant investment division functioning as a Category-I portfolio investor under the SEBI (Foreign Portfolio Investors) Regulations, 2019, computed in the prescribed manner.

The prescribed attribution methods and compliance requirements should be reviewed under the applicable Income-tax Rules, 2026, including Rule 140.

Deductions and capital gains computation

Section 210(4): Restrictions on deductions

Where gross total income consists only of securities income in row 1 of the statutory table, deductions under Sections 28 to 58, 60 and 61, Section 93(1)(a) or (e), and Chapter VIII are not allowed. Where gross total income also includes income in rows 1 to 5, the income in those rows is excluded from gross total income when determining Chapter VIII deductions for the remaining income.

Section 210(5): Capital gains computation

Section 72(6) does not apply when computing capital gains from the transfer of securities falling within rows 2 to 5 of Section 210(1).

Definitions under Section 210(6)

Foreign Institutional Investor: An investor specified by notification of the Central Government under Section 210(6)(a).

Permanent establishment: Has the meaning assigned in Section 173(c).

Securities: Has the meaning assigned in Section 2(h) of the Securities Contracts (Regulation) Act, 1956.

Specified fund: Has the meaning assigned in Note 1 to Schedule VI of the Income-tax Act, 2025.

Illustrative tax calculation

Suppose an FII earns Rs. 10,00,000 of securities income within row 1 and Rs. 4,00,000 of short-term capital gains not covered by Section 196. On those amounts, the basic income-tax under the table is Rs. 2,00,000 (20%) plus Rs. 1,20,000 (30%), or Rs. 3,20,000, before applicable surcharge and cess. This illustration assumes no separate exemption, treaty adjustment or subsequent legislative relief.

Government securities: Later 2026 measures introduced exemption treatment for certain FII/FPI income from government securities. Check the enacted law, its effective date and eligibility before applying the general Section 210 table to such income.

Frequently asked questions

What is the tax rate on securities income earned by an FII?

The Section 210(1) table specifies 20% for securities income other than units referred to in Section 208, subject to applicable law and relief.

What rate applies to a specified fund?

The table specifies 10% for the relevant securities income, with the attribution requirements of Sections 210(2) and 210(3), as applicable.

Are all short-term capital gains taxed at 30%?

No. Short-term gains covered by Section 196 have a separate 20% rate in Section 210; other short-term gains within this provision have a 30% rate.

Are deductions available against these special-rate incomes?

Section 210(4) restricts specified deductions and the calculation of Chapter VIII deductions. The result depends on the income composition.

Official statutory sources

Income-tax Act 2025 (as amended by Finance Act 2026)Income Tax Department resources

Last reviewed: 11 November 2026. General legal information only; verify the operative amendments and notifications for the relevant tax year.