The Central Board of Direct Taxes (CBDT), the apex direct taxes body has announced rules to implement the new regime that kicks in from April 1, with an aim to attract offshore fund management activity into the country. It has liberalized the tax framework to extend exemption to fund houses owned by a single institutional entity.
CBDT has said that the rules for operationalisation of the provisions of Section 9A of the I-T Act have been inserted in the Income-tax Rules, 1961. From April 1, 2016, the offshore funds will attract a special taxation regime under Section 9A, under which the fund management activity carried out through an eligible fund manager in India would not lead to the residence of the fund in India.
CBDT has also introduced an optional pre-approval mechanism which will work like an advance ruling, allowing such fund managers to get clarity on tax liability before starting operations. Under this mechanism, the fund can approach the CBDT to determine whether it has met the prescribed conditions and once the board grants approval, tax benefit cannot be denied to the fund by the tax officer. These rules have relaxed the harsh conditions imposed by Section 9A.