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The Finance Minister Arun Jaitley has sweetened the income tax deal for certain offshore investment funds, boosting the chances of their fund managers to be based out of India.
Sovereign wealth funds and investment funds promoted by foreign Governments/central banks have now been exempted from three of the thirteen conditions that were stipulated in this year’s budget for the investment fund to qualify for a special tax regime.
As part of his reply to the Finance Bill 2015, Jaitley on Thursday said that conditions regarding minimum number of investors, threshold of participation of interest of members etc will not apply in the case of investment funds set up by a foreign Government/central bank or sovereign wealth funds.
The Centre has also now empowered itself to notify any other fund that could be exempted from these conditions.
The Finance Bill 2015 among other conditions stipulates that an offshore fund should have at least 25 members who are not connected persons (as defined). No individual investor (including connected person) can hold 10 per cent or more in the fund.
Also, the aggregate participation interest of 10 or less members along with their connected persons will have to be less than 50 per cent of the fund
These three conditions have now been exempted for the investments funds set up by a foreign government/central banks and sovereign wealth funds.
EXPERTS TAKE
Reacting to Jaitley’s latest announcement, Aseem Chawla, Partner, MPC Legal, a law firm, said this "should bring competitiveness when contemplating India as a base for domiciling fund managers".
The Finance Minister has helped improve India’s competitiveness at the global stage in attracting fund managers to base themselves out of India, he said.
Suresh Swamy, Partner, PwC India, said this enabler could prompt the foreign government/central bank or sovereign wealth promoted investment fund to "atleast think about locating their fund managers in India".
"If these funds have significant India exposure, only then they will look at it (locating fund managers in India)", Swamy said.
BUDGET 2015-16
To encourage fund managers of offshore funds to locate themselves in India, Jaitley had in his recent Budget proposed a beneficial tax regime for offshore funds and their fund managers so long as they met certain conditions.
While offshore funds had to fulfill 13 conditions, the fund manager had to conform to four conditions so as not to be considered as "tax resident in India" and avoid facing adverse tax consequences.
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