CBDT notifies draft norms for calculating remuneration payable to eligible fund manager u/s 9A

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CBDT notifies draft norms for calculating remuneration payable to eligible fund manager u/s 9A
Section 9A of the Income-tax Act, 1961 provides that an offshore investment fund shall not be said to be resident in India or having a business connection in India merely because it carries out fund management activity through a fund manager located in India. This immunity is provided to an offshore fund if it meets certain conditions.
One of conditions provides that 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 arm’s length price of the said activity. However, the Finance (No. 2) Act, 2019 has amended such condition w.e.f. Assessment Year 2019-20, to provide that the Government shall provide a separate set of rules to determine the amount of remuneration for fund managers.
Now, the Central Board of Direct Taxes (CBDT) has issued a draft notification to prescribe the manner for calculation of such remuneration. A new sub-rule 11 has been proposed to be inserted in Rule 10VA of the Income-tax Rules, 1962 which prescribes the following manners for calculation of remuneration of eligible fund manager:
1) The remuneration amount shall be 0.10 percent of the assets under management of funds which is managed by the fund manager, if such fund is category-I foreign portfolio investor as referred to in items (i) to (iii) and sub-item III of item (iv) of section 5(a) of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.
2) In case of other funds:
a. 30 percent of the assets under management of said fund which is managed by the fund manager,
b. 10 percent of the profits derived by the fund in excess of the specified hurdle rate from the fund management activity undertaken by the fund manager, where it is entitled only to remuneration linked to the income or profits derived by the fund,
c. 50 percent of the management fee received by such fund in respect of the fund management activity undertaken by the fund manager as reduced by the amount incurred towards operational expenses, including distribution expenses (if any).
It has been also provided that if the amount of remuneration is lower than the amount calculated above, then the fund may apply before the CBDT to seek approval that such lower remuneration amount shall be treated as remuneration for the purpose of section 9A.
Further, the fund manager shall also obtain a report from an accountant in respect of activity undertaken for the fund and furnish such report in the Form No. 3CEJA. This report shall be in addition to any report required to be furnished by the fund manager under section 92E. The board has also requested the general public and the stakeholders to provide inputs on such draft rule at ustpll@nic.in by 19-12-2019.

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