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Date: 18-Jul-2023 Category: Extra Ordinary State: Union Government Country: India

Amendment of Income tax Rules to include IFSC related proposals in Finance Act 2023

Issued by Ministry of Finance · Department of Revenue

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Executive Summary & Key Takeaways

What it means

  • The notification introduces the Income-tax (Thirteenth Amendment) Rules, 2023, which further amends the Income-tax Rules, 1962. The amendment pertains to the treatment of movable property (shares, units, or interest) received by the fund management entity of a resultant fund in lieu of shares, units, or interest held by the investment manager entity in the original fund, pursuant to relocation.

Key Changes

  • Sub-rule (5) is inserted after sub-rule (4) in Rule 11UAC of the Income-tax Rules, 1962.
  • It stipulates conditions under which movable property received by the fund management entity of the resultant fund, in lieu of shares/units/interest held by the investment manager entity in the original fund, pursuant to relocation, will be treated.
  • Condition (i): Not less than 90% of shares/units/interest in the fund management entity of the resultant fund are held by the same entity(ies) or person(s) in the same proportion as held by them in the investment manager entity of the original fund.
  • Condition (ii): Not less than 90% of the aggregate of shares/units/interest in the investment manager entity of the original fund was held by such entity(ies) or person(s).
  • Explanation (a): Defines “relocation”, “original fund”, and “resultant fund” with reference to section 47(viiac) and 47(viiad) of the Income-tax Act, 1961.
  • Explanation (b): Defines “fund management entity” as per the International Financial Services Centres Authority (Fund Management) Regulations, 2022.
  • Explanation (c): Defines “investment manager entity” as the fund manager of the original fund regulated by the respective regulation of the jurisdiction in which the original fund is located.
  • A correction is made in sub-rule (4) of Rule 11UAC, replacing “this clause” with “this sub-rule” in the Explanation.

Impact Analysis

Impact on Fund Management Entities

  • Fund management entities need to align their operational structure with the definitions provided in the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

Impact on Investment Manager Entities

  • These entities need to understand the implications of these rules on fund restructuring and relocation activities.

Impact on Investors

  • The 90% holding condition ensures that the beneficial ownership of the fund remains largely unchanged during relocation, protecting investor interests.

Suggested Action Items

  • Monitor further clarifications or amendments to these rules by the Central Board of Direct Taxes (CBDT).

Key Entities Referenced

Central Board of Direct Taxes (CBDT): The issuing authority for the notification and responsible for amending the Income-tax Rules, 1962. Income-tax Act, 1961: The principal legislation governing income tax in India. Section 56(2)(x) and Section 295 are referenced as the basis for the notification. Income-tax Rules, 1962: The detailed rules framed under the Income-tax Act, 1961, which are being amended by this notification. Rule 11UAC is specifically amended. International Financial Services Centres Authority (Fund Management) Regulations, 2022: Regulations governing fund management entities in International Financial Services Centres (IFSCs) in India. Used to define 'fund management entity'. Original Fund: The fund from which assets are being relocated. Resultant Fund: The fund to which assets are being relocated. Fund Management Entity: Entity managing the resultant fund. Investment Manager Entity: The fund manager of the original fund.
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रजिस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99 सी.जी.-डी.एल.-अ.-18072023-247411 xxxGIDHxxx CG-DL-E-18072023-247411 xxxGIDExxx ऄसाधारण EXTRAORDINARY भाग II—खण् ड 3—ईप-खण्ड (i) PART II—Section 3—Sub-section (i) प्राजधकार स ेप्रकाजित PUBLISHED BY AUTHORITY स.ं 413] नइ ददल्ली, मगं लिार, िुलाइ 18, 2023/अषाढ़ 27, 1945 No. 413] NEW DELHI, TUESDAY, JULY 18, 2023/ASHADHA 27, 1945 जित्त मत्रं ालय (रािस्ट्ि जिभाग) (केन्द्रीय प्रत्यक्ष कर बोड)ड ऄजधसचू ना नइ ददल्ली, 18 िुलाइ, 2023 सा.का.जन. 519(ऄ).—केन्द्रीय प्रत्यक्ष कर बोड,ड अय-कर ऄजधजनयम, 1961 (1961 का 43) की धारा 295 के साथ पठित धारा 56 की ईपधारा (2) के खंड (x) के परंतुक के खंड (XI) द्वारा प्रदत्त िजियों का प्रयोग करते हुए, अय-कर जनयम, 1962 का और संिोधन करन े के जलए जनम्नजलजखत जनयम बनाता ह,ै ऄथाडत ् :- 1. संजक्षप्त नाम और प्रारंभ – (1) आन जनयमों का संजक्षप्त नाम अय-कर (तेरहिां संिोधन) जनयम, 2023 ह ै। (2) ि ेरािपत्र म ेंप्रकािन की तारीख से प्रिृत्त होंग े। 2. अय-कर जनयम, 1962 के जनयम 11पकग म,ें- (i) ईपजनयम (4) के स्ट्पष्टीकरण में, “आस खंड”, िब्दों के स्ट्थान पर, “आस ईपजनयम” िब्द रख ेिाएंगे ; (ii) ईपजनयम (4) के पश्चात्, जनम्नजलजखत ईपजनयम ऄंतःस्ट्थाजपत दकया िाएगा, ऄथाडत्:- ‘(5) जनम्नजलजखत ितों के ऄधीन रहते हुए, पनु ः ऄिस्ट्थापन के ऄनुसरण म,ें मलू जनजध म ें जिजनधान प्रबंधक ऄजस्ट्तत्ि द्वारा धाठरत िेयरों या यूजनटों या ब्याि के बदले में पाठरणाजमक जनजध के जनजध प्रबंधन ऄजस्ट्तत्ि द्वारा प्राप्त कोइ िंगम संपजत्त, िो पाठरणाजमक जनजध के िेयर या यूजनटें या ब्याि ह,ैं ऄथाडत्:- 4615 GI/2023 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)] (i) ईसी ऄजस्ट्तत्ि(िों) या व्यजि(यों) द्वारा ईसी ऄनुपात म ें धाठरत पाठरणाजमक जनजध के जनजध प्रबंधन ऄजस्ट्तत्ि में 90 प्रजतित से ऄन्द्यून िेयर या यूजनटें या ब्याि, िो ईनके द्वारा मूल जनजध के जिजनधान प्रबंधन ऄजस्ट्तत्ि म ेंधाठरत ह ै; और (ii) ऐसे ऄजस्ट्तत्ि(िों) या व्यजि(यों) द्वारा धाठरत दकए गए मूल जनजध के जिजनधान प्रबंधन ऄजस्ट्तत्ि म ें कुल िेयरों या यूजनटों या ब्याि के 90 प्रजतित से ऄन्द्यून । स्ट्पष्टीकरण – आस ईपजनयम के प्रयोिनों के जलए,- (क) “पुनः ऄिस्ट्थापन” “मूल जनजध” और “पाठरणाजमक जनजध” पदों के िही ऄथ ड होंग े िो ईनके धारा 47 के खडं (viiकग) और खंड (viiकघ) के स्ट्पष्टीकरण में क्रमिः ह ै; (ख) “जनजध प्रबंधन ऄजस्ट्तत्ि” पद का िही ऄथड होगा िो ईसका ऄतं रराष्ट्रीय जित्तीय सेिा केन्द्र प्राजधकरण (जनजध प्रबंधन) जिजनयम, 2022 के जिजनयमन 2 के ईपखंड (त) में यथा ईपबंजधत ह ै ; और (ग) “जिजनधान प्रबंधन ऄजस्ट्तत्ि” से संबंजधत ऄजधकाठरता के जिजनयमन द्वारा जिजनयजमत मूल जनजध का जनजध प्रबंधक ऄजभप्रेत ह ैजिसमें मलू जनजध ऄिजस्ट्थत ह ै।’ [ऄजधसूचना सं. 51/2023/फा. सं. 370142/22/2023-टीपीएल] ऄमृत प्रीतम चेजतया, ऄिर सजचि ठटप्पण : मलू जनयम भारत के रािपत्र, ऄसाधारण, भाग- II, खंड-3, ईप-खंड (ii) में क्रम संख्या का.अ. 969 (ऄ), तारीख 26 माच,ड 1962 द्वारा प्रकाजित दकए गए थ े और ऄजधसूचना संख्या सा.का.जन. 514 (ऄ), तारीख 17 िुलाइ, 2023 के द्वारा ऄंजतम बार संिोजधत दकया गया। MINISTRY OF FINANCE (Department of Revenue) (CENTRAL BOARD OF DIRECT TAXES) NOTIFICATION New Delhi, the 18th July, 2023 G.S.R. 519(E).—In exercise of the powers conferred by clause (XI) of the proviso to clause (x) of sub- section (2) of section 56 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules,1962, namely:─ 1. Short title and commencement.‒ (1) These rules may be called the Income-tax (Thirteenth Amendment) Rules, 2023. (2) They shall come into force from the date of their publication in the Official Gazette. 2. In the Income-tax Rules, 1962, in rule 11UAC, (i) in sub-rule (4), in the Explanation, for the words “this clause” the words “this sub- rule” shall be substituted; (ii) after sub-rule (4), the following sub-rule shall be inserted, namely:— „(5) any movable property, being shares or units or interest in the resultant fund received by the fund management entity of the resultant fund, in lieu of shares or units or interest held by the investment manager entity in the original fund, pursuant to the relocation, subject to the following conditions, namely:- (i) not less than ninety per cent of shares or units or interest in the fund management entity of the resultant fund are held by the same entity(ies) or person(s) in the same proportion as held by them in the investment manager entity of the original fund; and[भाग II—खण् ड 3(i)] भारत का रािपत्र : ऄसाधारण 3 (ii) not less than ninety per cent of the aggregate of shares or units or interest in the investment manager entity of the original fund was held by such entity(ies) or person(s). Explanation. — For the purposes of this sub-rule, — (a) the expressions “relocation”, “original fund” and “resultant fund” shall have the meanings respectively assigned to them in the Explanation to clause (viiac) and clause (viiad) of section 47; (b) “fund management entity” shall have the same meaning as provided in the sub-clause (p) of regulation 2 of the International Financial Services Centres Authority (Fund Management) Regulations, 2022; and (c) “investment manager entity” means the fund manager of the original fund regulated by the respective regulation of the jurisdiction in which the original fund is located.‟ [Notification No. 51/2023/ F. No. 370142/22/2023-TPL] AMRIT PRITOM CHETIA, Under Secy. Note : The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (ii), vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended vide notification number G.S.R. 514(E) dated 17th July, 2023. Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064 and Published by the Controller of Publications, Delhi-110054.

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