Income Tax Update: New Rule 281A and Form 173A for Government Securities Exemptions
The Central Board of Direct Taxes (CBDT) has introduced an important compliance update concerning specified tax exemptions on income earned from Government Securities. Through the Income-tax (Seventh Amendment) Rules, 2026, the CBDT has inserted Rule 281A and Form 173A into the Income-tax Rules, 2026.
The notification was published in the Official Gazette on 19 October 2026, and the amendment comes into force from the date of Gazette publication.
The new requirement prescribes the information that eligible taxpayers must furnish when claiming specified exemptions on interest income and capital gains from Government Securities under Schedule IV of the Income-tax Act, 2025.
For eligible investors and institutions, understanding the new form, preparing the required information, and maintaining accurate investment records will be important steps towards meeting the applicable tax compliance requirements.
At Taxla Services Pvt. Ltd., Chennai, we believe that staying informed about regulatory changes helps taxpayers and businesses prepare their documentation and manage compliance more effectively.
1. What Are Rule 281A and Form 173A?
Rule 281A has been inserted into the Income-tax Rules, 2026, after Rule 281. It specifies that an assessee seeking exemption under Sl. Nos. 13D and 13E of the table in Schedule IV of the Income-tax Act, 2025, must furnish information in Form 173A.
Form 173A is titled Information to be furnished for claiming exemption on interest and capital gains from Government securities.
The form is designed to collect information about the claimant, their country of residence, identification details, the relevant tax year, and the Government Securities associated with the exemption claim.
The objective for taxpayers is straightforward: the information supporting an exemption claim must be presented in the prescribed format, with relevant investment and income details properly documented.
2. Who Is Covered by This Update?
An important point is that this is not a general exemption available to every investor holding Government Securities.
The requirement relates specifically to exemptions under Sl. Nos. 13D and 13E of Schedule IV of the Income-tax Act, 2025. These entries concern specified categories, including:
Eligible Foreign Institutional Investors (FIIs): As covered by the relevant provisions of the Income-tax Act, 2025.
The Bank for International Settlements (BIS): The institution covered under the specified exemption provision.
The applicability of the exemption depends on the relevant statutory entry and the taxpayer satisfying the applicable conditions.
Domestic individuals, companies, and other investors should not assume that they qualify for these exemptions merely because they hold Government Securities or earn interest or capital gains from them.
Before making an exemption claim, taxpayers should confirm their eligibility under the relevant provisions and obtain professional advice where necessary.
3. What Income Is Covered?
The form concerns specified exemptions relating to two categories of income from Government Securities.
A. Interest income
Interest may arise from holding eligible Government Securities. Form 173A requires details of the gross interest received or accrued during the relevant tax year.
Taxpayers should maintain interest statements and investment records so that the reported amount can be reconciled with the relevant financial information.
B. Capital gains
Capital gains may arise when Government Securities are sold, exchanged, or transferred, subject to the applicable provisions.
The form requests details of capital gains earned during the tax year, along with information about securities purchased and sold.
The exemption is subject to the specific statutory provisions. Completing Form 173A does not, by itself, establish eligibility if the claimant does not meet the conditions under Schedule IV.
4. Key Details Required in Form 173A
The form is divided into two main parts: basic information and details of exempt income claimed on Government Securities.
Part A: Basic information
The claimant must provide the relevant identification and contact details, including:
Full name.
Country of residence.
Address in the country of residence or headquarters.
Permanent Account Number (PAN).
Tax Identification Number (TIN) in the country of residence.
SEBI registration number as an FPI/FII, where applicable.
Tax year for which the exemption is claimed.
Email address.
Contact number, including the country code.
The notification specifies that the TIN and SEBI registration details are optional for the Bank for International Settlements (BIS).
Taxpayers should ensure that the information is complete, consistent with official records, and appropriate to their category.
Part B: Government Securities and exempt income
The second part collects details about the relevant securities and the income for which the exemption is claimed.
The information includes:
International Securities Identification Number (ISIN).
Type of Government Security.
Tenor of the security.
Total value of securities as of 1 April.
Value of securities purchased during the year.
Sale consideration of securities sold during the year.
Total value of securities as of 31 March.
Gross interest received or accrued during the tax year.
Capital gains earned during the tax year.
The form lists categories such as Treasury Bills, fixed-rate bonds, floating-rate bonds, State Development Loans (SDLs), and other specified securities.
Amounts must be reported in Indian rupees unless otherwise indicated. Part B can be repeated where necessary to report additional securities.
5. Why Accurate Investment Records Matter
Form 173A requires information covering security identification, opening and closing values, purchases, sales, interest, and capital gains. This makes organised investment documentation particularly important.
Eligible claimants should consider maintaining the following records:
Investment records
Government Securities holding statements.
ISIN and security classification details.
Purchase and sale confirmations.
Custodian or broker statements, where applicable.
Income records
Interest statements showing amounts received or accrued.
Capital gains calculations and supporting transaction records.
Relevant financial statements and tax working papers.
Taxpayer information
PAN and other applicable identification details.
Residence and address documentation.
Relevant registration information.
Records supporting eligibility for the exemption.
The records should support the amounts reported in the form. Differences between transaction statements, interest records, and tax calculations should be investigated before submitting the claim.
6. When Does the New Requirement Apply?
The Income-tax (Seventh Amendment) Rules, 2026, state that the amendment comes into force on the date of publication in the Official Gazette. The notification was published on 19 October 2026.
Accordingly, the new rule and form take effect from that publication date.
Eligible taxpayers should review their existing reporting processes and determine how the prescribed information must be prepared for the relevant exemption claim. They should also monitor official guidance for any additional instructions concerning submission procedures.
Where the taxpayer's eligibility or the treatment of a particular transaction is uncertain, the applicable statutory provisions should be reviewed before making a claim.
7. Practical Steps for Tax Compliance
Taxpayers and institutions potentially covered by the new requirement can take the following steps:
Confirm eligibility: Check whether the taxpayer falls within the categories covered by Sl. Nos. 13D or 13E of Schedule IV.
Identify relevant securities: Prepare a list of Government Securities for which the exemption is being considered.
Reconcile investment values: Verify opening holdings, purchases, sales, and closing holdings.
Calculate income accurately: Review interest received or accrued and capital gains for the relevant tax year.
Complete the prescribed details: Prepare the information requested in Parts A and B of Form 173A.
Review supporting records: Ensure the form is consistent with the underlying investment and financial records.
Keep documentation organised: Retain the records necessary to support the exemption claim and respond to any subsequent queries.
These steps can help improve the accuracy and reliability of the exemption claim.
8. How Taxla Services Pvt. Ltd. Can Help
Tax rules and reporting requirements can be challenging, particularly for taxpayers managing investment income, financial transactions, and multiple compliance obligations.
Taxla Services Pvt. Ltd., Chennai, can assist clients with understanding relevant tax updates, organising supporting documentation, reviewing financial records, and identifying compliance requirements applicable to their circumstances.
For taxpayers potentially covered by the new Rule 281A and Form 173A, a careful review of eligibility, investment information, and income calculations can help support a well-documented approach to compliance.
The appropriate treatment will depend on the taxpayer's status, the nature of the securities, and the applicable legal provisions.
Conclusion
The introduction of Rule 281A and Form 173A marks an important procedural update for claiming specified exemptions on interest and capital gains from Government Securities under the Income-tax Act, 2025.
Published on 19 October 2026, the amendment prescribes the information required from eligible claimants under Sl. Nos. 13D and 13E of Schedule IV.
Eligible taxpayers should confirm their status, prepare accurate investment and income details, and follow the prescribed requirements before claiming the exemption.
Stay informed. Maintain accurate records. Ensure tax compliance with Taxla Services Pvt. Ltd.
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