Indian Government is likely to relax rules of fund managers in order to attract fund managers who are dealing with global investment funds to operate out of India. Government had then said that an offshore fund will not be exposed to Indian tax.
New Tax rule for Global Fund Managers
In 2015, India has introduced special tax rule for global fund managers. Also, government has add new Section 9A to Income Tax Act, 1961 with effect from 01.04.2016 to provide for special system in respect of offshore funds having fund managers located in India.
Government of India is also planning to relax some of the safe harbour rules set for offshore fund managers, in order to allow private equity investors to shift their base to India without attracting a tax on capital. Read Aadhaar Must for Death Certificate from October 1
Section 9A of Income Tax Act
However, there are some concerns under Section 9 A of Income Tax Act which are keeping foreign funds in India. Number of employees has been demand to relax norms so that the fund has to maintain in India and also certain other norms around taxation of FPIs in India. And Government may think to offering some transfer pricing provisions. Further, these provisions are to be applied in unity with the guidelines to be set by CBDT.
Section 9A has been set up with plan to remove bad tax cost due to presence of fund manager in India managing the funds of Foreign Portfolio Investors. This section provides that in case of an eligible investment fund. Also, fund management activity carried out through an eligible fund manage acting on behalf of such fund will not constitute business connection in India.
Government put some condition to fund managers and foreign investors
In other words, taxation will not dependent on where fund manager are sitting in Mumbai, Hong Kong or Singapore. However, government had put some conditions which fund managers and foreign investor has to follow. Later Central Board of Direct Taxes declares some leeway for such funds. Check Modi working on simpler rules to lift direct tax revenue
Government said that people reached out to global funds in order to stay away from India. However, most funds have still away from India so government is making some leeway for 1 and 2 funds. Regulatory regime continues with relaxation of pricing norms for foreign direct investments and foreign portfolio investment regime.
Tax implication for fund managers
Income tax department has further relaxed condition for offshore funds to encourage overseas fund managers. But 2015-16 government had made some exemption by amending permanent establishment PE norms. This exempted these fund managers from corporate tax even if located in India and they only have to pay capital gains tax.
However, fund manager has to reveal names of all investors and to make sure that Indian investors do not have more than 5% of total money held by funds. Now, fund may have tax implication if manager found to be charging more than 5% lower or higher than average fee charges by others. Here, foreign funds are demanding that fund manager and funds must be enclosed.