The Central Board of Direct Taxes (CBDT) vide notification on Wednesday has issued the Income-tax (10th Amendment) Rules, 2020. The Rule 10V that provides the guidelines for the application of Section 9A has been amended. The Section provides that an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India.

As per section 9A of the Income Tax Act, 1961, the person along with his connected persons shall not be entitled, directly or indirectly, to more than twenty percent of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through the fund manager.

The amendment provides that the sub-rule (5) to sub-rule (10) which provides rights and duties of eligible fund managers shall not apply on or after the 1st day of April 2019. It also provides that the amount of remuneration to be paid by the fund to a fund manager shall be 10% of the asset under management for Category-I Foreign portfolio investment.

The amended rule provides as under the amount of remuneration to be paid by the fund to a fund manager, referred to in clause (m) of sub-section (3) of section 9A, shall be calculated in the following manner, “in a case where the fund is Category-I foreign portfolio investor referred to in item (i), item (ii) or item (iii), and sub-item III of the item (iv) of clause (a) of regulation 5 of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), the amount of remuneration shall be 0.10 percent of the asset under management.”

In other cases, the amount of remuneration shall be 0.30 percent. of the asset under management, 10% of 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 or 50 percent. of the management fee, whether in the nature of the fixed charge or linked to the income or profits derived by the fund from the management activity undertaken by the fund manager, paid 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.

The notification further provides for a format in the form of “FORM No. 3CEJA” pertaining to a report from an accountant to be furnished for purpose of section 9A regarding the fulfillment of certain conditions by an eligible investment fund.