CBDT relaxes requirement of remunerating fund managers of offshore funds

The Central Board of Direct Taxes (CBDT) has relaxed the requirement of remunerating fund managers of certain offshore funds because of the amended Rule 10V for availing the special taxation regime under Section 9A. 

The Section provides for a special taxation regime in respect of certain offshore funds in the context of their fund managers being located in India.

The CBDT has stated that for financial years 2019-20 and 2020-21 in cases where the remuneration paid to the fund manager is lower than the amount of remuneration prescribed under sub-rule (12) of Rule 10V, but is at arm’s length, there is no need to take CBDT nod for that lower amount to be the amount of remuneration.

However, the board's permission will be required from FY21-22 if fees paid to the manager are lower than the prescribed amount. 

The Finance Act 2019 had replaced one of the conditions requiring an arm’s length remuneration to be paid to the eligible fund manager for performing fund management activities, with a minimum remuneration to be paid under a prescribed methodology, which became effective from April 1, 2019. 

The notification provided a window for applicants to seek approval from the board when the amount of remuneration is lower than prescribed.

"Since it was not possible to comply with the provisions for FY19-20 and FY20-21, the CBDT has issued a notification stating that the remuneration paid by the fund manager, if lower than the amount prescribed shall be sufficient if it is at arm’s length for FY19-20 and FY20-21," said Sunil Gidwani, Partner, Nangia Andersen.