Indian income tax | Investor protection funds
Section 10(23EA) Exemption for Investor Protection Funds of Stock Exchanges
Section 10(23EA) of the Income-tax Act, 1961 provided a targeted exemption for contributions received by a qualifying Investor Protection Fund established by recognised stock exchanges in India.
Meaning of Section 10(23EA)
Under Section 10(23EA), income by way of contributions received from a recognised stock exchange or its members by an Investor Protection Fund set up by recognised stock exchanges in India, either jointly or separately, and notified by the Central Government, is excluded from total income subject to the statutory proviso.
An Investor Protection Fund is a fund established to support investor protection and eligible investor claims in accordance with the applicable stock-exchange framework. A recognised stock exchange is a stock exchange recognised under the Securities Contracts (Regulation) Act, 1956, subject to the applicable statutory definition.
Eligibility and extent of exemption
| Eligible entity | An Investor Protection Fund established by one or more recognised stock exchanges in India. |
|---|---|
| Qualifying income | Contributions received from a recognised stock exchange or its members. |
| Extent | The full amount of qualifying contributions can be excluded from total income when the statutory requirements are met. |
| Notification | The fund must be notified by the Central Government for the relevant period under the applicable law. |
| Taxability on sharing | An amount previously exempted that is subsequently shared with a recognised stock exchange becomes taxable in the year in which it is shared, as provided by the statutory proviso. |
Conditions to claim the exemption
- Recognised exchange: The fund must be established by recognised stock exchanges in India, individually or jointly.
- Government notification: Confirm that the specific Investor Protection Fund is covered by the relevant Central Government notification.
- Eligible source: Identify contributions from the recognised exchange or its members separately from other types of receipts.
- Accounting records: Maintain contribution registers, supporting bank records, notification details and records of amounts utilised or shared.
- Clawback: Track any previously exempt amount shared with a recognised stock exchange, since this triggers taxation under the proviso.
Example of how Section 10(23EA) works
Suppose a notified Investor Protection Fund receives contributions from a recognised stock exchange and its members. Those qualifying contributions may be exempt under Section 10(23EA) for a year governed by the Income-tax Act, 1961. If a portion of a previously exempt balance is later shared with the exchange, that portion is brought to tax in the year of sharing, subject to the statutory wording.
Interest, investment income, grants from other sources and unrelated receipts should be examined independently. The phrase any income should not be read as exempting all income of the fund under this specific clause.
Investor Protection Funds and the income-tax law from 2026
The Income-tax Act, 2025 applies from 1 April 2026. Section 10(23EA) is the numbering under the Income-tax Act, 1961 and remains relevant for years governed by that Act. For a tax year governed by the 2025 Act, check the corresponding provision, applicable notifications and transitional rules rather than assuming that the old section number or exemption conditions apply unchanged.
Official legislation and regulatory resources
- Income Tax Department: Income-tax legislation - statutory text and amendments.
- India Code - central Acts, including the Income-tax Act and Securities Contracts (Regulation) Act, 1956.
- Securities and Exchange Board of India (SEBI) - investor protection and stock-exchange regulatory material.
- Income Tax e-Filing portal - current tax compliance services.
Frequently asked questions
Which funds qualify under Section 10(23EA)?
An Investor Protection Fund set up by recognised stock exchanges in India, jointly or separately, and notified by the Central Government under the applicable provision.
What income is exempt under Section 10(23EA)?
Income by way of contributions received from a recognised stock exchange or its members, subject to the statutory conditions. Other receipts are not automatically covered.
Is the exemption available without notification?
No. The relevant fund must satisfy the notification and other conditions applicable for the relevant assessment year.
What happens when an exempt balance is shared with a stock exchange?
Where an amount previously excluded from income is shared with a recognised stock exchange, the applicable provision brings that amount to tax in the year of sharing.
This article provides general information. Actual eligibility depends on the relevant tax year, government notification, source of income and applicable statutory conditions.