India Plans Tax Breaks for Offshore Funds Using Local Managers
India has suggested changes to tax laws to protect offshore investment funds from Indian tax obligations when they channel investments through fund managers located in India, according to a draft bill.
The suggested alteration arises as the nation confronts considerable foreign capital departures, leading the administration to implement strategies to entice international investors through simplified access.
Investors have frequently voiced grievances regarding the stringent tax enforcement in India.
The government characterized the new regulations as established "to encourage fund management operations and ensure tax clarity."
According to current regulations, an offshore fund needs to have a minimum capital of 1 billion Indian rupees ($10.49 million), must have no less than 20 investors, and limit any individual investor's stake to 25percent to enjoy protection from Indian taxation.
Funds that do not fulfill these criteria may face tax rates of up to 38percent on their profits sourced from India.
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The proposed bill aims to eliminate all minimum size and diversification criteria within the safe harbour rules, allowing offshore funds—irrespective of their asset base or investor concentration—to utilize Indian fund managers without incurring tax liabilities if parliament approves the bill.
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"Replacing an overly detailed regime with a much simpler substance-based framework has notably lowered the chances of offshore funds being seen as having a 'business connection' in India—and therefore taxable—just because their investment manager is situated here," states Girish Vanvari, founding partner of Transaction Square, a business and tax advisory firm in India.
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The suggested regulations have kept some protections, including a limit of 5percent of the fund's assets from domestic investors, and the fund must not control businesses in India to avoid Indian tax liabilities.