Presence of Eligible Fund Manager in India not to constitute Business Connection in India – Section 9A - International Taxation - Income Tax

Presence of Eligible Fund Manager in India not to constitute Business Connection in India Section 9A 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. [ Section 9A(1) ] An eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India. [ Section 9A(2) ] Eligible Investment Fund The eligible investment fund means a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely:- The fund is not a person resident in India; The fund should be a resident of a country or a specified territory with which India entered into DTAA as per section 90 or section 90A ; The aggregate participation or investment in the fund, directly [ or indirectly (Omitted vide Finance Act, 2025 ) ] , by persons resident in India does not exceed 5% of the corpus of the fund [ as on the first day of April and the first day of October of the previous year (Inserted vide Finance Act, 2025 w.e.f. 01.04.2025) ] ; For the purposes of calculation of the said aggregate participation or investment in the fund, any contribution made by the eligible fund manager during the first three years of operation of the fund, not exceeding Rs.25 crore, shall not be taken into account; where the said aggregate participation or investment in the fund exceeds five per cent. on the first day of April or the first day of October of the previous year, the condition mentioned in this clause shall be deemed to be satisfied, if it is satisfied within four months of the first day of April or the first day of October of such previous year, as the case may be The fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; The fund has a minimum of 25 members who are, directly or indirectly, not connected persons; Any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%.; The aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund, shall be less than 50%.; The fund shall not invest more than 20% of its corpus in any entity; The fund shall not make any investment in its associate entity; The monthly average of the corpus of the fund shall not be less than Rs. 100 crore: provided that if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than Rs. 100 crore at the end of a period of 12 months from the last day of the month of its establishment or incorporation; however, this condition shall not be applicable to a fund which has been wound up in the previous year; The fund shall not carry on or control and manage, directly or indirectly, any business in India; The fund is neither engaged in any activity which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India other than the activities undertaken by the eligible fund manager on its behalf; The remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed: Note: Conditions specified in clauses (e), (f) and (g) shall not apply in case of an investment fund set up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund notified by the Central Government i.e., an investment set up by a Category -I or Category-II Foreign portfolio Investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2014, made under the SEBI Act, 1992. [ Section 9A(3) ] Eligible Fund Manager The eligible fund manager, in respect of an eligible investment fund, means any person who is engaged in the activity of fund management and fulfils the following conditions, namely:- the person is not an employee of the eligible investment fund or a connected person of the fund; the person is registered as a fund manager or an investment advisor in accordance with the specified regulations; the person is acting in the ordinary course of his business as a fund manager; the person along with his connected persons shall not be entitled, directly or indirectly, to more than twenty per cent. of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through the fund manager. [ Section 9A(4) ] Furnishing Statement or Information by an eligible investment fund Every eligible investment fund shall, in respect of its activities in a financial year, furnish within 90 days from the end of the financial year, a statement in the form Form No.3CEK , to the prescribed income-tax authority containing information relating to the fulfilment of the conditions specified in this section and also provide such other relevant information or documents as may be prescribed. [ Section 9A(5) ] Penalty for failure to furnish statement or information or document by an eligible investment fund [ Section 271FAB W.e.f. 01.04.2016 ] If any eligible investment fund which is required to furnish a statement or any information or document, as required under sub-section 9A(5) fails to furnish such statement or information or document within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such fund shall pay, by way of penalty, a sum of Rs. 5,00,000/-. Exception of Sub-section 3 and 4 of section 9A The Central Government may, by notification in the Official Gazette, specify that any one or more of the conditions specified in clauses (a) to (m) of sub-section (3) or clauses (a) to (d) of sub-section (4) shall not apply or shall apply with such modifications, as may be specified in such notification, in case of an eligible investment fund and its eligible fund manager, if such fund manager is located in an International Financial Services Centre, as defined in clause (a) of the Explanation to section 80LA, and has commenced its operations on or before the 31st day of March, [ 2024 2030 Substituted vide Section 5 of the Finance Act, 2025 w.e.f. 01.04.2025 ] Specified regulations means [ Section 9A(9)(e) ] the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 or Such Regulation has been replaced by the Securities And Exchange Board of India (Portfolio Managers) Regulations, 2020 the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 , or such other regulations made under the Securities and Exchange Board of India Act, 1992, which may be notified by the Central Government under this clause the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 [ Notification No. 27/2019 dated 20.03.2020 ] Important Notification Circulars The Central Government hereby notifies that the conditions specified in clauses (e), (f) and (g) of section 9A(3) shall not apply in case of an investment fund set up by a Category-I or Category-II foreign portfolio investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2014, made under the SEBI Act, 1992. [ Notification No. 77/2017 dated 03.08.2017 w.e.f. 23.09.2017 ] The Central Government hereby notifies that the conditions specified in clauses (e), (f) and (g) of the section 9A(3) shall not apply in case of an investment fund set up by a Category-I foreign portfolio investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019 , made under the SEBI Act, 1992 . [ Notification No. 41/2020 dated 30.06.2020 r.w.e.f. 23.09.2019 ]