Relaxation of offshore fund norms is not enough, feel experts

KR Srivats New Delhi | Updated on January 20, 2018 Published on March 02, 2016

SEBI suggestion on modifying stipulation around treaty countries gets assent

The recent Budget may have relaxed two conditions in the income tax law in order to extend beneficial tax treatment to offshore funds investing in India. However, this may not be enough to encourage fund managers of these funds to relocate themselves in India, say tax experts.

Accepting market regulator SEBI’s post-Budget suggestion of last year, the Modi Government has in the latest Budget modified a condition that earlier required offshore funds to be resident of a country or territory with which India has a Double Taxation Avoidance Agreement or Tax Information Exchange Agreement.

Now, the Budget seeks to empower the Centre to specify the countries (non-treaty ones) where investment funds located can enjoy beneficial tax treatment on their investments in India.

Two out of 13

The second condition relaxed related to the aspect of the business connection of offshore funds. The Budget now specifies that the condition of the fund not continuing and managing any business in India or from India would be restricted only in the context of activities in India. To encourage fund managers of offshore funds to relocate themselves in India, Finance Minister Arun Jaitley had in last year’s 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 fulfil 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.

Fund managers left out

This year’s Budget has relaxed two of the 13 existing conditions in the case of offshore funds.

Reacting to this Budget proposal, Vipul Jhaveri, Partner, Deloitte Haskins & Sells, said the relaxation of the condition will certainly help in offshore funds not being subject to tax in India. However, until a preferential tax treatment is extended to fund managers also, they will not be encouraged to set up shop in India, Jhaveri told BusinessLine.

Girish Vanvari, Head of Tax, KPMG in India said the relaxation of two out of existing 13 conditions may not be adequate to grow the fund management industry in India. “More needs to be done. There are other restrictions that need to be complied with,” he pointed out.

Anish Thacker, Tax Partner, EY, said this relaxation of two conditions would not be enough and more needs to be done if fund managers were to relocate to India.

Published on March 02, 2016
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