CBDT publishes Draft Notification relating to Fund Manager Regime under Income Tax 1961

Central Board of Direct Taxes issued a draft notification on 5th December 2019, seeking inputs for framing of rules with respect to Fund Manager Regime under Section 9A of the Income Tax Act, 1961.

Section 9A of the Income-tax Act, 1961 (the Act) provides for a special taxation regime in respect of certain offshore funds in the context of their fund managers being located in India, and for an eligible investment fund, the fund management action that is carried out through an eligible fund manager functioning for such funds would not establish a business connection in India of the held fund.

Further it is provided that an eligible investment fund would not be said to be resident in India only because the eligible fund manager undertaking fund management actions on its behalf is located in India subjected to the conditions stated in sub-section (3) of section 9A, one of which [clause (m) of stated sub-section] furnishes that the remuneration paid through the fund towards an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not below the arm’s length price of the said activity.

Key Highlights of the amendment:

Rule 10VA which deals with approval of fund in which sub-rule 5 to sub-rule 10 shall not be applicable from 1st April 2019. The amendment specifies a method to calculate the remuneration to be paid by the fund to a fund manager.

Further, the fund managers shall, in addition to any report required to be furnished by them under section 92E, obtain a report from the accountant in respect of activity undertaken for the fund, furnish such report on or before the specified date in the Form No. 3CEJA ,duly verified by such accountant in the manner indicated therein. All the provisions of the Act shall apply as if it is a report to be furnished under section 92E.

The draft also provides for the Form No. 3CEJA.

The draft notification suggesting the abovementioned amendments is uploaded on www.incometaxindia.gov.in for inputs from stakeholders as well as the general public. The inputs on the draft rules might be sent electronically at the email address, ustpl1@nic.in, latest by 19th December 2019.

Click here to read the Notification.