01/07/20

ASIA: India eases eligibility criteria for investment funds by FPIs.

As published on economictimes.indiatimes.com, Wednesday 1 July, 2020.

India has retrospectively eased eligibility conditions for investment funds set up by Category-I Foreign Portfolio Investors (FPIs) such as sovereign funds, pension funds, regulated entities including offshore banks, to avail tax benefits.

These funds, registered under the Securities Exchange Board of India (SEBI) regulations, are exempt from conditions of having minimum 25 members, with none having more than 10% participation interest and aggregate participation interest of 10 members not exceeding 50%, to avail the special taxation regime offered by the Indian government.

“The Central Government hereby notifies that the conditions specified in clauses (e), (f) and (g) of sub-section (3) of section 9A of the Income Tax Act, 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,” the Central Board of Direct Taxes (CBDT) said in a notification dated June 30.

The changes are effective from September 23, 2019.

“It is hereby certified that no person is being adversely affected by giving retrospective effect to this notification,” it added. As on date, there are over 8000 Category I FPIs registered in India, experts said.

In September 2019, SEBI had reclassified registration categories of FPIs into Category I and Category II, with strict and increased threshold of eligibility norms made applicable for Category I participants which includes sovereign funds, pension funds, regulated entities like offshore banks and approved members of the Financial Action Task Force on money laundering.

Experts said, the notification aligns tax rules with the amended SEBI regulations, and along with recent rules prescribing minimum remuneration by fund managers to avail tax exemption, should give the necessary push to funds to evaluate India as a favourable investment destination.

“Given the recent political upheavals in active fund jurisdictions like Hong Kong and countries vying for economic activity post Covid 19, the amendments should help in building India as long term fund jurisdiction and encourage more fund managers to relocate to India,” said Aravind Srivatsan, Partner, Nangia Andersen LLP.

Pending applications are expected to be expedited since the clarification is retrospective from September 2019, he added.