Section 10(23EC) of the Income Tax Act provides a tax exemption for income received by an Investor Protection Fund (IPF) set up by a commodity exchange in India, either jointly or separately.
Key Features:
- Eligible Income: Contributions received from the commodity exchange and its members.
- Eligible Entity: The IPF must be notified by the Central Government in the Official Gazette.
- Important Caveat: If any amount credited to the IPF (and previously exempt) is shared with the commodity exchange, that amount becomes taxable in the year of sharing.
Example:
Suppose the NCDEX Investor (Client) Protection Fund Trust is set up by the National Commodity & Derivatives Exchange (NCDEX). It receives ₹15 crore in contributions from NCDEX and its members. This ₹15 crore is exempt from income tax under Section 10(23EC).
However, if ₹2 crore from this fund is later transferred back to NCDEX for operational use, that ₹2 crore becomes taxable in the year of transfer.
This provision ensures that investor protection funds are used solely for safeguarding investors and not diverted for other purposes.
