An offshore banking unit in an IFSC can run an investment division whose income is exempt under section 10(4D). The catch is that the division has to be provably separate from the bank around it — and Form 10-IL is where an accountant says so.
At a glance
- What it is
- Verification by an accountant under sub-rule (3) of Rule 21AJA
- Who files
- The investment division of an offshore banking unit
- Pairs with
- Form 10-IK, the annual statement of exempt income
- Who signs
- A Chartered Accountant in practice
- Exemption
- Section 10(4D), read with section 115AD
- Core requirement
- Separate books and records for the investment division
- Under the 2025 Act
- Schedule VI
The structure being taxed
Section 10(4D) exempts specified income of a “specified fund”. One category of specified fund is the investment division of an offshore banking unit located in an International Financial Services Centre.
That creates an unusual problem. The investment division is not a separate legal entity — it sits inside a bank that also does ordinary banking. So the exemption depends on carving out, credibly, which income belongs to the division and which does not.
Rules 21AJA and 21AJAA exist for exactly this. Rule 21AJA prescribes how to compute the exempt income of a specified fund attributable to the investment division of an offshore banking unit. Rule 21AJAA deals with determining the income attributable to that division. Form 10-IL is the accountant’s verification under Rule 21AJA(3).
Form 10-IK and Form 10-IL
| Form | What it is | Filed by |
|---|---|---|
| Form 10-IK | Annual statement of exempt income under section 10(4D) | The eligible investment division |
| Form 10-IL | Verification by an accountant under Rule 21AJA(3) | A Chartered Accountant |
The two work together. The division prepares the statement; the accountant examines the books and records behind it and verifies the computation. Filing one without the other leaves the exemption unsupported.
What has to be true
- The unit is an offshore banking unit in an IFSC holding the necessary registration.
- The investment division maintains separate books of account and supporting records, distinct from the rest of the banking unit.
- Income attributable to the division is computed under Rules 21AJA and 21AJAA.
- The annual statement is furnished in Form 10-IK.
- The accountant’s verification is furnished in Form 10-IL.
- Electronic filing and data-security requirements are met.
Separate books are not a formality. The entire exemption rests on the proposition that the investment division’s income can be identified apart from the bank’s other income. Where books are maintained centrally and the division’s figures are derived by allocation after the fact, the verification becomes difficult to give and the claim becomes difficult to defend.
What the accountant is verifying
- That the entity is an eligible investment division of an offshore banking unit
- That separate books and records were in fact maintained through the year
- That the attribution of income follows Rules 21AJA and 21AJAA
- That the income claimed as exempt falls within section 10(4D)
- That the figures agree with the annual statement in Form 10-IK
Reconciling Form 10-IL to Form 10-IK is the first step, and inconsistency between them is the first thing an assessment will look for.
Where it sits among the IFSC forms
| Provision | Subject | Form |
|---|---|---|
| Section 10(4D) | Specified fund, including OBU investment division | Form 10-IK, Form 10-IL |
| Section 10(23FF) | Capital gains on relocation of an offshore fund | Form 10-IJ |
| Section 80LA | Deduction for IFSC units and OBUs | Form 10CCF |
| Section 10(23FE) | Sovereign wealth and pension funds | Form 10BBC, Audit Report SWF |
UDIN on Form 10-IL
Form 10-IL is a verification signed by a practising Chartered Accountant, so UDIN applies. As a certification supporting an exemption claim it sits in the Certificates category, mandatory since 1 February 2019.
Sixty calendar days from upload. A form uploaded without a UDIN and not updated within that period is treated by the CBDT as invalid, with all due consequences of law, even after acceptance. Revocation closes at 48 hours, and a separate UDIN is needed for Form 10-IL and for any other certificate signed the same day.
See our guide to UDIN generation.
Section 10(4D) under the Income-tax Act, 2025
The 2025 Act replaced section 10’s long list of clauses with schedules. The IFSC-related exemptions sit in Schedule VI, headed “Income not to be included in Total Income of Certain Eligible Persons in an International Financial Services Centre”. Per ICAI’s tabular mapping:
| Provision | 1961 Act | 2025 Act |
|---|---|---|
| Specified fund income | Section 10(4D) | Schedule VI, Table Sl. Nos. 1 and 2 |
| Relocation capital gains | Section 10(23FF) | Schedule VI, Table Sl. No. 10 |
| Sovereign and pension funds | Section 10(23FE) | Schedule V, Table Sl. No. 7 |
Schedule V and Schedule VI are different things. Sovereign wealth and pension fund relief is Schedule V; the IFSC exemptions, including section 10(4D), are Schedule VI. The clauses look similar and the schedules are not interchangeable.
Frequently asked questions
What is Form 10-IL?
The verification by an accountant under sub-rule (3) of Rule 21AJA, supporting the exemption of income of the investment division of an offshore banking unit under section 10(4D).
How does it relate to Form 10-IK?
Form 10-IK is the annual statement of exempt income filed by the investment division; Form 10-IL is the accountant’s verification of it. Both are needed.
Which rules govern the computation?
Rule 21AJA computes exempt income attributable to the investment division; Rule 21AJAA deals with determining income attributable to it.
Are separate books really required?
Yes. The investment division must maintain separate books of account and supporting records. The exemption depends on its income being identifiable apart from the rest of the banking unit.
Who can sign Form 10-IL?
A Chartered Accountant in practice.
Is UDIN required?
Yes, in the Certificates category, with the 60-calendar-day update rule after upload.
Does section 115AD matter here?
Yes. The exemption under section 10(4D) operates alongside the section 115AD regime for specified funds, and the two are read together.
Where does section 10(4D) sit under the Income-tax Act, 2025?
Schedule VI, the IFSC schedule, at Table Sl. Nos. 1 and 2.
Is this the same as the section 10(23FF) certificate?
No. That is Form 10-IJ, dealing with capital gains on relocation of an offshore fund. Different clause, different form.
In short
Form 10-IL is a narrow verification protecting a substantial exemption, and everything turns on one operational question: were the investment division’s books genuinely separate through the year? Get that right and Rules 21AJA and 21AJAA are arithmetic. Get it wrong and no amount of year-end allocation will make the verification comfortable to sign.
Micro Advisor advises IFSC units and offshore banking units on exemption computations and the related certification.
References
Disclaimer. General information, not professional advice. The IFSC and specified fund rules are amended frequently; verify the current position for the unit and year concerned.