Modification in conditions of special taxation regime for off shore funds under section 9A
Section 9A of the Act provides for a special regime in respect of offshore funds. It provides that in the 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, 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. The benefit under section 9A is available subject to the conditions provided in sub-sections (3), (4) and (5) of the section.
Sub-section (3) of section 9A provides for the conditions for the eligibility of the fund. These conditions, inter-alia, are related to residence of fund, corpus, size, investor broad basing, investment diversification and payment of remuneration to fund manager at arm’s length. In respect of corpus of the fund, the condition is that the monthly average of the corpus of the fund shall not be less than one hundred crore rupees except where the fund has been established or incorporated in the previous year in which case, the corpus of fund shall not be less than one hundred crore rupees at the end of such previous year.
Representations have been received stating that in the year in which the fund is being wound up, it would not be possible to maintain the monthly average of the corpus of the fund to an amount which would not be less than one hundred crore rupees as required.
In order to rationalise the regime and to address the concerns of the stakeholders, it is proposed to provide that in the previous year in which the fund is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than one hundred crore rupees, shall not apply.
This amendment will take effect retrospectively from 1st April, 2016 and shall apply to the assessment year 2016-17 and subsequent years.
Extract of relevant clause from Finance Bill, 2017
Amendment of section 9A.
5. In section 9A of the Income-tax Act, in sub-section (3), in clause (j), after the proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2016, namely:—
“Provided further that nothing contained in this clause shall apply to a fund which has been wound up in the previous year;”.