Are overseas fund managers on the hook for taxes in India?


Are overseas fund managers on the hook for taxes in India?
No tax liability would arise on the asset management companies that manage offshore funds from India.

Published: Sun 9 Jun 2019, 9:12 PM

Last updated: Sun 9 Jun 2019, 11:14 PM

Q: Overseas fund managers want to set up offices in India. The worry is that they may be saddled with a tax liability. Is there such a possibility?
A: Earlier, only portfolio managers and investment advisers could manage overseas funds from India without any risk of tax liability. The law has now been changed, whereby asset management companies can become full-fledged managers of such funds from India. Under Section 9-A of the Income-tax Act, in the case of an eligible investment fund, the activity of fund management would not constitute a business connection in India of such fund.
An eligible investment fund is one that is approved by the Securities and Exchange Board of India, provided the fund is not resident in India but is a resident of another country with which India has entered into a double tax avoidance agreement. The fund should have a minimum of 25 members who are not connected persons directly or indirectly. Another important condition is that the fund should not invest more than 20 per cent of its corpus in one single entity. Subject to the fulfillment of other conditions laid down in Section 9-A, no tax liability would arise on the asset management companies that manage offshore funds from India.
Q: I have recently inherited an immovable property from my grandfather and I want to know what are the formalities which I should comply with in order to acquire legal title to this property. I want to sell it as soon as I become the legal owner. In that case, will it be a short-term capital gain?
A: First of all, you will have to apply for a probate, that is, certified copy of a will, from a court. If your grandfather died without a will, a succession certificate will has to be obtained from the court. Physical control over the immovable property should be immediately taken by you. Once the orders are obtained from the court, you will need to undertake mutation of the title to the property. Mutation means transfer of title ownership from your grandfather to your name by amending the land records, municipal records, etc, depending on the nature of the property.
Every state government has its own set of procedures to be followed. For example, if the property is located in Delhi, the municipal corporation accepts the registered will and mutates the property. The application for mutation has to be made by affixing court fee stamps, providing indemnity bond and affidavit on stamped paper of requisite value, and providing proof of property tax payment. A mutation certificate is mandatory for selling the property in future. Under the tax law, the property will be a long-term capital asset since your grandfather owned it for more than three years. Hence, long-term capital gains tax at the rate of 20 per cent will be payable on the taxable part of the capital gains.
Q: My firm in Dubai would like to set up a private equity company in India, which would invest its funds in startups that are in the biotechnology sector. I want to know the regulations applicable to such private equity firms.
A: Last month, the Securities and Exchange Board of India has provided the framework for the procedure to be followed by investors like your private equity firm. The private equity firm will have to fulfill the eligibility criteria of having a minimum liquid net worth of ?250 million. In such a case, it would be recognised as an accredited investor (AI). Such an investor would need to make an application to the exchanges or depositories in the prescribed manner.
The exchanges and depositories will be responsible for verification and maintenance of data pertaining to all AIs. The accreditation will be valid for three years from the date of its registration, unless during such period it becomes ineligible on account of change in its financial status. The AI will be eligible to invest in startups in sectors like e-commerce, data analytics and biotechnology. Such startups would be listed on the Innovators Growth Platform. Such listing would be done in accordance with the guidelines laid down from time to time and the merchant banker would be responsible for ensuring that these guidelines are adhered to.
The writer is a practicing lawyer specialising in tax and exchange management laws of India.

By H.P. Ranina
 NRI Problems

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