Following amendments to the income tax rules by the Finance Ministry, it has now become convenient for Indian fund managers of offshore funds to shift their operations to India.
With a view to increasing fund management from within the country, Section 9A of the Income Tax Act had provided a special relaxation to offshore funds four years back. According to the regulation, tax could be deducted only from a fund manager’s income or management fee, instead of the entire global income of the global fund.
However, Indian fund managers located outside the country did not return to the country as was expected, because it was not clear exactly how much the fee of an Indian fund manager should be, in order to enjoy the relaxation as per Section 9A.
As per the clarification issued by the Central Board of Direct Taxes, the Finance Ministry has now said that for a 9A special dispensation foreign portfolio investor (FPI) category 1 (including sovereign wealth funds and pension funds), the amount of remuneration or management fee paid by the fund to the Indian fund manager needs to be at least 0.1% of the assets under management (AUM).
In case of category 2 FPIs, usually hedge funds, the fund managers should be paid 0.3 per cent of AUM or at least 50 per cent of the total management fee.
Now that the remuneration has been clarified, more asset managers are expected to shift their fund management operations to India. This will also make the onshore management of foreign funds much easier for local asset managers.