The seeds that were sown by the government in ‘the 2015-16 Budget are starting to bear fruit.

The Central Board of Direct Taxes (CBDT) has started paving the way for offshore fund managers to relocate to India for managing their offshore funds without having to face any adverse tax consequences.

This is being done for the public markets space, mainly foreign portfolio investors (FPI) structures.

Several fund managers have, in recent days, finally made the cut and got the pre-approvals from the CBDT (under Section 9A of the Income Tax Act). Approvals were given three days back for a set of FPI fund managers, said industry experts.

Section 9A, which was introduced in April 1, 2016, provides that only a fund manager’s income or management fee will be subjected to tax and not the entire global income of the global fund. To get this, funds had to meet certain conditions.

Gautam Mehra, Partner and Leader-India Tax and Regulatory, PwC, said the first set of pre-approvals is a path-breaking development for the listed market funds and could pave the way for extending the ‘Make in India’ concept to this segment of the fund management industry. “It would be important to extend this benefit to all private equity and venture funds as well,” Mehra added.

This could open the floodgates and prompt more Indian fund managers located outside India to return.

On-shoring of fund management — which the government had promised to facilitate in Budget 2015-16 through an enabling tax regime — is finally taking wings, say experts.

FPIs, which have got the taxman’s nod of meeting the Section 9A conditions, can now move their fund managers to operate out of India without fear of 40 per cent taxation in India on their global incomes.

Tushar Sachade, Partner, Financial Services, PwC India, said that fund managers sitting in offshore jurisdictions such as Singapore can now move to India and start managing from here the offshore funds located in Singapore.

This will also boost flows into India as fund managers will be closer to the ‘deal ecosystem’, Sachade said.

“Because of the tax issues, fund managers were till date sitting out of Singapore. Now, they can come here and manage the Singapore funds sitting out of India,” he said.

For the last three years, no single approval was given by the CBDT. Now, for the public markets at least, things are moving, a tax expert said.

Although some of the fund managers have made the cut on the conditions set by the CBDT, some experts feel that certain conditions are onerous and many global funds will not venture into India but would prefer to operate out of Singapore, Mauritius, etc.