F No 142/15/2015-TPL

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, 5th December, 2019

Subject: Framing of rules with respect of Fund Manager Regime under section 9A of the Income-tax Act, 1961-Draft notification for inputs from stakeholders and the general public - reg.

Section 9A of the Income-tax Act, 1961 (the Act) provides for a special taxation regime in respect of certain offshore funds in context of their fund managers being located in India. It is provided that in 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, it is provided that an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India subject to the conditions mentioned in sub-section (3) of section 9A, one of which [clause (m) of said sub-section] provides that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the arm's length price of the said activity.

2. Accordingly, Income-tax Rules, 1962 (the Rules) was amended by way of insertion of rules 10V to 10VB and Forms 3CEJ and 3CEK vide notification No 14/2016 with SO 1101 (E) dated 15.03.2016. Rules 10V was further amended vide notification No 106/2016 with SO 3498(E) dated 21.11.2016.

3. Sub-rule (5) to (10) of rule 10V of the Rules contains the provisions relating to determination of the arm's length price in respect of any remuneration paid by the eligible investment fund to an eligible fund manager as referred to in clause (m) of sub-section (5) of section 9A.

4. Finance (No 2) Act, 2019 with effect from 1^st April, 2019, inter alia, amended clause (m) of sub-section (5) of section 9A so as to provide that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed.

5. Accordingly, the manner for calculation of the amount to which remuneration paid to the eligible fund manager should not be less is required to be prescribed.

6. A draft notification to amend the Rules for this purpose is enclosed. It is requested from the general public and the stakeholders to provide inputs electronically at the email address, [email protected], latest by 19th December, 2019.

(Neha Sahay)

Deputy Commissioner of Income-tax (OSD) (TPL)-I

Tel No: 011-2309 5468

E-mail: [email protected]

Fund manager remuneration rules set prescribed calculation methods and require certified reporting by the fund manager. The rules prescribe calculation methods for minimum remuneration payable by an offshore fund to an India based fund manager: 0.1% of assets under management for specified Category I FPIs; otherwise 0.30% of assets under management, or 10% of profits above a specified hurdle where remuneration is performance linked, or 50% of the management fee net of operational and distribution expenses. Funds may seek Board approval for a lower amount. Key terms are defined and the fund manager must furnish an accountant's report in Form No. 3CEJA with prescribed annexure; Form 3CEK is amended accordingly.