Income Tax Guide | Offshore Banking Units

Section 10(15)(viii): Income Tax Exemption on Interest from Offshore Banking Unit Deposits

Section 10(15)(viii) of the Income-tax Act, 1961 provided a targeted exemption for interest on qualifying deposits made with an offshore banking unit in a Special Economic Zone (SEZ). It is not a general exemption for every bank deposit, foreign-currency account or investment held by a non-resident.

Important for tax year 2026-27: The Income-tax Act, 2025 applies from 1 April 2026. This page explains the historical section 10(15)(viii) provision under the 1961 Act. For income arising in a tax year governed by the 2025 Act, check the corresponding provisions and applicable transitional rules in the current legislation before claiming an exemption.

What does section 10(15)(viii) mean?

Under the Income-tax Act, 1961, section 10 lists categories of income excluded from total income, subject to specified restrictions. Clause (15) deals with certain kinds of interest and related income. Sub-clause (viii) addressed interest received by a non-resident or a person who is not ordinarily resident in India on a deposit made on or after 1 April 2005 in an offshore banking unit as referred to in section 2(u) of the Special Economic Zones Act, 2005.

An offshore banking unit is a branch of a bank located in a Special Economic Zone and holding the permission required under the banking and SEZ regulatory framework. The statutory definition is found in section 2(u) of the Special Economic Zones Act, 2005. The term does not mean any bank account operated from outside India.

Eligibility and exemption at a glance

Requirement	Position under section 10(15)(viii) of the 1961 Act
Eligible taxpayer	A person who is non-resident or not ordinarily resident in India for the relevant year.
Qualifying income	Interest on a qualifying deposit with an offshore banking unit.
Date of deposit	Deposit made on or after 1 April 2005.
Qualifying institution	An offshore banking unit within the meaning of section 2(u) of the Special Economic Zones Act, 2005.
Exemption amount	The qualifying interest in full, provided all statutory conditions are satisfied.
Ordinary domestic deposits	Not automatically covered merely because the depositor is an NRI.

Who is a non-resident or not ordinarily resident?

Residential status is determined for each relevant year under the applicable income-tax law. Under the 1961 Act, section 6 contained the tests for determining whether an individual was resident, non-resident, or resident but not ordinarily resident. The tests consider presence in India and other statutory criteria; nationality alone is not decisive. For entities, residential status is determined under the rules relevant to their legal form.

Therefore, a taxpayer should first establish their residential status and then verify that the specific deposit and receiving bank unit meet the statutory requirements. An Indian citizen living abroad is not automatically entitled to this exemption for every interest receipt.

Conditions for claiming the exemption

Confirm the deposit date. The original provision applies to deposits made on or after 1 April 2005.
Confirm the banking unit. Obtain documentary confirmation that the deposit is held with an eligible offshore banking unit, rather than an ordinary domestic branch.
Establish residential status. Retain documents supporting non-resident or not-ordinarily-resident status for the relevant year.
Identify the interest. Keep the deposit certificate, account statements and interest advice showing the interest attributable to the eligible deposit.
Apply the law for the correct year. For income governed by the Income-tax Act, 2025, independently check the current exemption and transition provisions rather than relying only on the historical section number.

Illustrative example

Suppose a qualifying non-resident maintains a deposit made after 1 April 2005 with an eligible offshore banking unit in an SEZ. If the deposit and interest satisfy the applicable statutory requirements, the interest may qualify for exclusion from total income under section 10(15)(viii) for a year governed by the 1961 Act. If the same person instead earns interest from an ordinary savings account, the exemption cannot be assumed merely because the account holder is non-resident.

Offshore banking units, NRE accounts and other tax concessions

Interest on certain Non-Resident (External) accounts may be covered by a separate provision, historically section 10(4)(ii) of the 1961 Act, subject to its own conditions. Interest from an offshore banking unit is a distinct category. Other tax concessions available to eligible units in an International Financial Services Centre or SEZ also have separate statutory requirements. These regimes should not be treated as interchangeable.

Documents to keep

Deposit opening confirmation and certificate showing the original deposit date.
Written identification of the bank branch as an eligible offshore banking unit.
Annual interest certificate or bank statements.
Documents supporting the taxpayer's residential status for the relevant year.
Applicable tax return working papers and evidence of any tax deducted at source.

Frequently asked questions

Is all interest earned by an NRI exempt from Indian income tax?

No. The exemption depends on the type of income and the conditions of the specific legal provision. Ordinary deposits do not become exempt solely because the account holder is an NRI.

Does the exemption cover the entire qualifying interest?

Under the historical section 10(15)(viii), the qualifying interest was excluded in full, subject to satisfaction of the provision's requirements.

Does an offshore banking unit mean any foreign bank?

No. The definition refers to a bank branch established in a Special Economic Zone under the applicable legal framework.

Can this historical section number be used for tax year 2026-27?

Not without checking the Income-tax Act, 2025 and relevant transition provisions. Section 10(15)(viii) is a reference to the Income-tax Act, 1961.

Official legislation and guidance

Updated 10 October 2026. This article is general information, not a substitute for examining the law and facts applicable to a particular tax year and deposit.