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Fund Managers offered very limited relief

July 26, 2019

AMC is a Fund Manager

The Central Board of Direct Taxes (CBDT) vide its circular[1] dated May 10, 2019 clarified that an Asset Management Company (AMC) is engaged in the activity of fund management of Mutual Funds and hence is in substance a Fund Manager and entitled for benefits under Section 9A of the Income Tax Act, 1961. Hence, CBDT has essentially allowed AMCs to directly manage offshore funds out of India.

CBDT had further clarified that the phrase “fund manager” under Income Tax Act includes an AMC as approved under SEBI (Mutual Funds) Regulations, 1996.

Amendments proposed in the Budget 2019

One of the key proposals on cross border taxation in the Budget which was presented on July 5, 2019[2] is with regards to fund management activities.

CBDT’s above referred circular hinted at further relaxations in respect of the conditions specified under Section 9A of the Income Tax Act, however, it appears that the Union Budget 2019 is not meeting the expectations of the offshore fund managers as it proposes to relax only two conditions.

The Budget Speech by the Finance Minister mentioned that in order to facilitate location of fund managers of offshore funds in India, the government had enacted a specific concessional regime in 2015 however, this was subject to certain conditions. Amongst the said conditions, two conditions namely – the remuneration of fund manager and the time limit for building up of corpus are proposed to be rationalised so as to facilitate setting up of fund management activity in India with respect to such offshore funds.

Although the fund management industry must welcome these amendments however, the industry had anticipated more impactful amendments to be proposed like amendments with respect to investment limits, permitted activities etc.

[1] Available at: http://itatonline.org/info/wp-content/uploads/2019/05/Circular-No.-8-dated-10.05.2019.pdf

[2] Key highlights available at: http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1577423

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