Asset management companies (AMCs) can now graduate from being mere ‘advisors’ to offshore funds to becoming a direct, “full fledged manager” of such funds out of India. This comes after the Central Board of Direct Taxes (CBDT) removed a taxation related constraint that prevented Indian AMCs from taking up direct fund management activity for the offshore funds.

The CBDT has clarified that SEBI-approved asset management companies will be designated as ‘eligible fund manager’ and therefore entitled for benefits under Section 9A of the income tax law. This would mean that fund management activities carried for offshore funds by such AMCs would not be regarded as having a ‘business connection’ and would not result in a taxable presence of such offshore funds in India.

Even if the overseas fund is managed by AMCs from India there will be no adverse tax consequences for the overseas funds here. Hence, their global incomes will not be subjected to tax in India.

MF house view

Sundeep Sikka, ED & CEO, Reliance Nippon Life Asset Management, told BusinessLine the CBDT move allows mutual funds to become fund manager, rather than ‘just advisors’ of foreign (offshore) money.

“This is a positive development and the timing couldn’t have been better. This is going to open more doors for foreign investors to get their money managed out of India and for asset management companies to manage much more. While it will enable more foreign capital to flow into India, it will also make it easy for foreign asset owners to access research capability of Indian AMCs,” Sikka said.

“From a country point of view we will get more inflows. We don’t have to export talent. All of the boutiques flourishing in Singapore and Hong Kong, you could see some of that business directly coming to Indian asset management companies.”

The move will bolster the revenue stream of Indian AMCs as they would otherwise get only an ‘advisory fee’.

Tax experts’ take

Gautam Mehra, Partner and Leader — Tax and Regulatory Services, PwC India, said, “The extension of the asset management safe harbour to mutual fund management companies is a welcome move. Earlier, these provisions permitted only Portfolio Managers and Investment Advisors to manage overseas funds from India, but not mutual fund managers. This development is timely in view of recent approvals granted and should open opportunities for mutual fund managers to target a different segment. Overseas regulations would also need to be adhered to before going down this route”.

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said, “With the given clarification, SEBI-approved AMCs would be designated as eligible fund managers and the fund management activities carried on by such AMCs would not be regarded as having a business connection and therefore would not yield a taxable presence of such funds in India.”

Sandeep Jhunjhunwala, Director, Nangia Advisors (Andersen Global), said the move would eliminate unintended challenges and avertable delays in obtaining approval from CBDT regarding eligibility under Section 9A of the Income Tax Act, dealing with safe harbour from business connection and permanent establishment (PE) risks for investment management activities of offshore funds done by Indian AMCs.

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