Tax regime for resident fund managers of FIIs eased
New Delhi: The government has eased the taxation regime for advisors and fund managers working from India for foreign institutional investors (FIIs), giving them more flexibility to organize their activities without the gains they make on their investments becoming taxable as business income.
The move is part of the government’s efforts to expand the domestic financial services market, which lost out to their counterparts like Singapore and London because of onerous conditions on operations.
The taxation regime of these fund managers allow the gains they make on their investments to be subjected to only capital gains tax—and not to be taxed as business income—if they follow certain conditions.
Saturday’s notification by the Central Board of Direct Taxes (CBDT), the apex policy making body for direct taxes, waived off three of those conditions relating to the diversification of participants in those offshore funds.
Separately, the board also named 121 countries to which the benefit will apply. Accordingly, the funds set up in countries including Mauritius, Singapore, Switzerland and Netherlands will get the benefit.
One of the conditions waived off is the requirement for the fund to have at least 25 members who are not directly or indirectly connected by family or by directorship in a company. The notification also waived off the requirement for members in the fund or their connected persons not to have more than 10% interest in the fund. The third condition that has been waived off is the 50% limit on the participation interest in the fund that ten members or their connected persons could have in the fund.
Experts welcomed the move. “The effort of the government is to expand the domestic financial services market by easing the conditions that were found to be onerous by these funds,” said Amit Maheshwari, partner, Ashok Maheshwary and Associates LLP.
The funds taking advantage of the provisions have to be registered with capital market regulator Securities and Exchange Board of India (Sebi). The notification dated 3 August and released on Saturday said it is effective from the date of its publication.