Section 10(23EA) of the Income Tax Act provides a tax exemption for income received by an Investor Protection Fund (IPF) set up by a recognized stock exchange in India.
Key Features:
- Eligible Income: Contributions received from recognized stock exchanges and their members.
- Eligible Entity: The IPF must be set up by a recognized stock exchange, either jointly or separately.
- Government Notification: The fund must be notified by the Central Government in the Official Gazette.
Important Caveat:
If any amount credited to the IPF (and previously exempt from tax) is shared with the stock exchange, that amount becomes taxable in the year it is shared2.
Example:
Suppose the Bombay Stock Exchange (BSE) sets up an Investor Protection Fund and receives ₹10 crore in contributions from its members. This ₹10 crore is exempt from income tax under Section 10(23EA).
However, if ₹2 crore from this fund is later transferred back to BSE for operational use, that ₹2 crore becomes taxable in the year of transfer.
This provision ensures that funds meant for investor protection are used solely for that purpose and not diverted for other uses.
