Amended and updated notes on section 9A of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to certain activities not to constitute business connection in India.
Chapter II (Sections 4 to 9A) of the Income Tax Act 1961 deals with the provisions related to basis of charge. Section 9A of IT Act 1961-2023 provides for certain activities not to constitute business connection in India.
Recently, we have discussed in detail section 9 (Income deemed to accrue or arise in India) of IT Act 1961. Today, we learn the provisions of section 9A of Income-tax Act 1961. The amended provision of section 9A is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 9A of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India.
Section-9A: Certain activities not to constitute business connection in India
Section 9A(1) of Income Tax Act
Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section, in the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund.
Section 9A(2) of Income Tax Act
Notwithstanding anything contained in section 6, an eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India.
Section 9A(3) of Income Tax Act
The eligible investment fund referred to in sub-section (1), means a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely:—
- (a) the fund is not a person resident in India;
- (b) the fund is a resident of a country or a specified territory with which an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A has been entered into or is established or incorporated or registered in a country or a specified territory notified by the Central Government in this behalf;
- (c) the aggregate participation or investment in the fund, directly or indirectly, by persons resident in India does not exceed five per cent of the corpus of the fund:
Provided that for the purposes of calculation of the said aggregate participation or investment in the fund, any contribution made by the eligible fund manager during the first three years of operation of the fund, not exceeding twenty-five crore rupees, shall not be taken into account;
[Proviso in clause (c) of sub-section (3) of section 9A has been inserted w.e.f. 01.04.2020 by the Finance Act 2020]
- (d) the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident;
- (e) the fund has a minimum of twenty-five members who are, directly or indirectly, not connected persons;
- (f) any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding ten per cent;
- (g) the aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund, shall be less than fifty per cent;
- (h) the fund shall not invest more than twenty per cent of its corpus in any entity;
- (i) the fund shall not make any investment in its associate entity;
- (j) the monthly average of the corpus of the fund shall not be less than one hundred crore rupees:
Provided that if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than one hundred crore rupees at the end of a period of twelve months from the last day of the month of its establishment or incorporation:
[First proviso of clause (j) of sub-section (3) of section 9A has been amended(substituted) w.e.f. 01.04.2020 by the Finance Act 2020]
Provided further that nothing contained in this clause shall apply to a fund which has been wound up in the previous year;
- (k) the fund shall not carry on or control and manage, directly or indirectly, any business in India;
- (l) the fund is neither engaged in any activity which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India other than the activities undertaken by the eligible fund manager on its behalf;
- (m) 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 amount calculated in such manner as may be prescribed:
Provided that the conditions specified in clauses (e), (f) and (g) shall not apply in case of an investment fund set up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund as the Central Government may subject to conditions, if any, by notification in the Official Gazette, specify in this behalf.
Section 9A(4) of Income Tax Act
The eligible fund manager, in respect of an eligible investment fund, means any person who is engaged in the activity of fund management and fulfils the following conditions, namely:—
- (a) the person is not an employee of the eligible investment fund or a connected person of the fund;
- (b) the person is registered as a fund manager or an investment advisor in accordance with the specified regulations;
- (c) the person is acting in the ordinary course of his business as a fund manager;
- (d) the person along with his connected persons shall not be entitled, directly or indirectly, to more than twenty per cent of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through the fund manager.
Section 9A(5) of Income Tax Act
Every eligible investment fund shall, in respect of its activities in a financial year, furnish within ninety days from the end of the financial year, a statement in the prescribed form, to the prescribed income-tax authority containing information relating to the fulfilment of the conditions specified in this section and also provide such other relevant information or documents as may be prescribed.
Section 9A(6) of Income Tax Act
Nothing contained in this section shall apply to exclude any income from the total income of the eligible investment fund, which would have been so included irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not.
Section 9A(7) of Income Tax Act
Nothing contained in this section shall have any effect on the scope of total income or determination of total income in the case of the eligible fund manager.
Section 9A(8) of Income Tax Act
The provisions of this section shall be applied in accordance with such guidelines and in such manner as the Board may prescribe in this behalf.
Section 9A(8A) of Income Tax Act
The Central Government may, by notification in the Official Gazette, specify that any one or more of the conditions specified in clauses (a) to (m) of sub-section (3) or clauses (a) to (d) of sub-section (4) shall not apply or shall apply with such modifications, as may be specified in such notification, in case of an eligible investment fund and its eligible fund manager, if such fund manager is located in an International Financial Services Centre, as defined in clause (a) of the Explanation to section 80LA, and has commenced its operations on or before the 31st day of March, 2024.
[Sub-section (8A) of section 9A has been inserted w.e.f. 1st April, 2022 by the Finance Act 2021]
Author Note: You may refer CBDT Notification No. 59/2022 dated 6th June 2022 for the purpose of sub-section (8A) in Section 9A of the Income Tax Act.
Section 9A(9) of Income Tax Act
For the purposes of this section,—
- (a) “associate” means an entity in which a director or a trustee or a partner or a member or a fund manager of the investment fund or a director or a trustee or a partner or a member of the fund manager of such fund, holds, either individually or collectively, share or interest, being more than fifteen per cent of its share capital or interest, as the case may be;
- (b) “connected person” shall have the meaning assigned to it in clause (4) of section 102;
- (c) “corpus” means the total amount of funds raised for the purpose of investment by the eligible investment fund as on a particular date;
- (d) “entity” means any entity in which an eligible investment fund makes an investment;
- (e) “specified regulations” means the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 or the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, or such other regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), which may be notified by the Central Government under this clause.