The Government of India is likely to relax Rules of Fund Management in order to attract the fund managers who are dealing with global investment funds to operate out of India.
The Finance Act, 2015 has inserted a new Section 9A to the Income Tax Act, 1961 with effect from 01.04.2016 to provide for a special regime in respect of offshore funds having fund managers located in India.
Section 9A of the Income Tax Act provides for safe harbour provisions whereby an ‘eligible investment fund’ shall not be regarded as a tax resident in India merely because an ‘eligible fund manager’ undertaking fund management activities on its behalf is located in India. Benefits under the safe harbour provisions are subject to compliance with certain conditions prescribed under section 9A (3). Further, these provisions are to be applied in accordance with the guidelines to be prescribed by the CBDT.
Section 9A has been inserted in the Income Tax Act with intent to remove adverse tax consequences due to presence of fund manager in India managing the Funds of Foreign Portfolio Investors. The section provides that in the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund.
Further, an eligible investment fund shall not be said to be resident in India for this purpose merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India.
There is also a confusion exists regarding transfer pricing provisions. The law relating to transfer pricing is dynamic and the members of the Institute are getting acquainted with the practical implications of the provisions and rules relating to Transfer pricing. Hence the government should consider these problems and try to resolve the same at its best level.