[IFSC] Govt. notifies Sec. 9A conditions not applicable for eligible investment fund

Notification No. 59/2022, dated 06-06-2022

Section 9A of the Income-tax 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.

Sub-section (3) and sub-section (4) of Section 9A list down conditions which shall be fulfilled by the eligible investment fund and eligible fund manager to claim the benefit.

Sub-section (8A) of Section 9A also empowers the Central Government to notify any one or more of the conditions as specified in respect of eligible investment fund or eligible fund manager shall not apply or shall apply with such modifications, as may be specified in such notification, if such fund manager is located in an International Financial Services Centre as defined Section 80LA, and which has commenced its operations on or before the 31-03-2024.

Exercising the power, the Central Government has notified that clause (e), clause (f), and clause (g) of section 9A(3) shall not apply to an eligible investment fund. The conditions referred to in under these clauses are:

1. Clause (e) – The fund has a minimum of 25 members who are, directly or indirectly, not connected persons.
2. Clause (f) – Any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%.
3. Clause (g) – Aggregate participation interest, directly or indirectly, of 10 or less members along with their connected persons in the fund, shall be less than 50%.

Further, the Govt. has also modified the condition referred to in clause (k) of section 9A(3). The modified condition is:

• Clause (k) – The fund shall not carry on, or participate in, the day to day operations of any person in India and for this purpose, the monitoring mechanism to protect the investment in such person including the right to appoint directors or executive directors shall not be considered as participation in day to day operations of such person in India.
In the case of an eligible fund manager, the condition referred to in clause (b) of section 9A(4) has been modified. The modified conditions is:
• Clause (b) – The person is registered as a portfolio manager or an investment advisor in accordance with the International Financial Services Centres Authority (Capital Market Intermediaries) Regulation 2021 as notified under the International Financial Services Centres Authority Act, 2019 (50 of 2019) or such other regulations made under the International Financial Services Centres Authority Act, 2019 (50 of 2019).

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