Background
Section 139(1C) of the Income-tax Act, 1961 (IT Act) confers power upon the Central Government to exempt by notification in the Official Gazette, any class or classes of persons from the requirement of furnishing a return of income subject to the satisfaction of conditions as may be prescribed therein. Exercising the said power, the Central Board of Direct Taxes (CBDT) issued a Notification1 dated 26 July 2019 (effective from the said date), exempting a non-resident (not being a company) or a foreign company (class of persons) having income chargeable under the IT Act from any investment in an ‘investment fund’ set-up in an International Financial Services Centre (IFSC) located in India from the requirement of filing return of Income in India from Fiscal Year (FY) 2018-19 onwards subject to fulfilment of the following prescribed conditions:
i. Any income tax due on the income of the said class of persons has been deducted at source at the tax rate in force as per the provisions of section 194LBB2 of the IT Act and remitted to the Central Government by the Investment Fund; and
ii. there is no other income during the previous year for which the said class of persons is otherwise liable to file the return of income.
However, the aforesaid exemption from the requirement of furnishing a return of income in India is not available to the said class of persons where a notice under section 142(1) or section 148 or section 153A or section 153C of the IT Act has been issued for filing the return of income for the relevant FY specified therein.
As per the Notification, ‘Investment Fund’ means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).
The Central Board of Direct Taxes (CBDT) vide its Notification3 dated 14 July 2023 has amended its earlier Notification1 exempting Non-resident Individuals (including foreign companies) having income chargeable under the IT Act subject to satisfaction of certain conditions, to expand the scope of ‘investment fund’.
We, at BDO in India, have analysed and summarised this notification hereunder.
Amendment in the definition of Investment Fund provided in Notification1 dated 26 July 2019
The CBDT has amended its previously issued Notification1 to expand the meaning of ‘Investment Fund’ as defined under the aforesaid Notification1 to include any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which is regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019).
BDO in India Comments
The amendment is in line with the initiative of the Government of India to reduce the compliance burden of investors investing through IFSC in India. The recently amended benefit of exemption to certain class of persons from filing return of Income in India is in line with the Government’s intention to promote IFSC as a friendly jurisdiction for foreign investors.
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1 Notification No. 55/2019 dated 26 July 2019
2 Section 194LBB of the IT Act provides that any person responsible for making the payment of income to the unitholders, other than the income chargeable under the head ‘Profits and gains of business or profession’ shall deduct tax at source at 10% if the unitholder is a resident in India and at rates in force if the unitholder is a non-resident in India.
3 Notification No. 49/2023 dated 14 July 2023