The Income Tax Department has launched Form 68, a mandatory annual filing for Category III AIFs, retail funds, and ETFs to claim tax exemptions on income earned for eligible non-resident investors. This requirement applies under the Income-tax Act, 2025, and ensures compliance for funds seeking tax benefits on foreign-linked income.
The Indian Income Tax Department has officially introduced Form 68, a new annual reporting obligation targeting specific investment vehicles operating within India. This regulatory update is part of the implementation of the Income-tax Act, 2025, and directly impacts how certain funds report income that is exempt from tax when attributed to non-resident investors.
Applicability and Compliance
The new mandate applies specifically to Category III Alternative Investment Funds, retail investment funds, and Exchange Traded Funds. For these entities, filing Form 68 is now a prerequisite if they wish to claim tax exemptions on income attributable to unit holders who are non-residents. A key condition for this exemption is that the non-resident investor must not maintain a permanent establishment within India. It is important to note that this requirement does not apply to individual taxpayers, as it is focused solely on the reporting structure of these specific investment funds.
Filing Process and Irrevocability
Compliance with this rule must be handled exclusively through the Income Tax Department's official e-filing portal. Funds are required to verify their submissions using a Digital Signature Certificate or an Electronic Verification Code, as physical or offline filings are not accepted. The deadline for submitting Form 68 is aligned with the fund's statutory income tax return filing due date, which is determined by the specific category of the fund under the updated tax laws.
A significant operational detail for fund managers is the irrevocable nature of the filing. Once Form 68 is submitted and an acknowledgement is received, the document cannot be revised or amended. This makes the accuracy of data—such as income from securities transfers and details of non-resident unit holders—paramount. Funds must prepare by organizing necessary documentation, including registration certificates from the IFSCA, trust deeds or Memorandums of Association, and comprehensive annual financial statements.
Investor Monitorables
For investors and stakeholders in these funds, the focus shifts to how fund managers handle this new administrative layer. Proper compliance is essential for the fund to maintain its tax-exempt status on foreign-attributed income. Failure to file correctly could potentially jeopardize these tax benefits, which would impact the fund's net returns. Investors should monitor communications from their fund houses to ensure that all required unit-holder residency documentation is updated, as this is critical for the accurate filing of the mandatory annexures in Form 68.