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Tax and Regulatory update on Foreign Portfolio Investors (FPI), SEBI and International Financial Services Centre (IFSC) in India –April 2022 to June 2022

11 July 2022

Notification for Section 9A – Fund Managers

Section 9A of the Income-tax Act, 1961 (Act) provides for a special regime in respect of offshore funds by providing them exemption from creating a “business connection” in India on fulfilment of certain conditions. It provides that 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. Further, an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. The benefit under section 9A of the Act is available subject to the conditions as provided in sub-sections (3), (4) and (5) thereof.

Sub-section (3) of section 9A of the Act provides the conditions for eligibility of the fund. Further, sub-section 8A of section 9A of the Act specified that 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].

In this regard, the Central Board of Direct Taxes vide Notification no 59/2022 dated 6 June 2022 has notified that clause (e), (f) and (g) of Section 9A(3) of the Act shall not apply to an eligible investment fund referred in Section 9A(8A) of the Act.

The aforesaid clauses are as follows:

(3) 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:—

(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;

Further, clause (k) to sub-section (3) provides that the fund shall not carry on or control and manage, directly or indirectly, any business in India. The Notification modified the aforesaid clause to provide that “the fund shall not carry on, or participate in, the day to day operations of any person in India and for this purpose the monitoring mechanism to protect the investment in such person including the right to appoint directors or executive director shall not be considered as participation in day to day operations of such person in India.”

Section 9A(4) of the Act specifies conditions to be satisfied by an eligible fund manager referred to in sub-section (8A). Clause (b) to sub-section 4 provides that the person should be registered as a fund manager or an investment advisor in accordance with the specified regulations.

The Notification modified the aforesaid clause (b) to specify that “the person is registered as a portfolio manager or an investment advisor in accordance with the International Financial Services Centres Authority (Capital Market Intermediaries) Regulation 2021 as notified under the International Financial Services Centres Authority Act, 2019 (50 of 2019) or such other regulations made under the International Financial Services Centres Authority Act, 2019 (50 of 2019).”

Guidelines for removal of difficulties under sub-section (6) of section 194S of the Income-tax Act, 1961

CBDT vide circular dated 22 June provides guidelines for section 194S: -

  • Cases where Virtual Digital Asset transferred is owned not by a Exchange: the tax deduction according to the stated section of the Act will be made only by the Exchange, which will credit or pay to the seller but in case of a broker involved as an intermediary, TDS may be deducted by the broker as per the written arrangement between the broker and the Exchange.
  • Cases where Virtual Digital Asset transferred is owned by an Exchange: the tax will be deducted as per the agreement between the Exchange and buyer or broker.
  • Also, once Tax is deducted under section 194S, it shall not again be taxable under section 194Q.
  • TDS will be applicable on net consideration for seller i.e., after excluding GST/any commission.
  • In case of payment through payment gateway, the payee may deduct the tax and may take an undertaking from the gateway for the same.
  • The threshold limit for the purpose of tax will be counted from April 2022 i.e., the entire financial year.

Regulatory Updates – FPI

Limits for investment in debt and sale of Credit Default Swaps by Foreign Portfolio Investors (FPIs)

According to the RBI’s notification dated 19th April,2022, the overall limit on the notional amount of credit default swaps (CDSs) that can be sold by Foreign Portfolio Investors (FPIs) has been pegged at INR 2 22 623 crores for FY23.

Investment limits for FY 2022-23                                             (all figures in INR Crore)


G-Sec General

G-Sec Long Term

SDL General

SDL Long Term

Corporate Bonds

Current FPI limits






Revised limit for the HY Apr 2022-Sept 2022






Revised limit for the HY Oct 2022-Mar 2023







Modification in the Operational Guidelines for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors-SEBI to generate FPI registration number and both the Depositories to host the CAF:

SEBI circular dated 29th April,2022 effective from 9th May 2022 modifies operational guidelines for FPI’s as follows:

1. Designated depository participants has the authority to grant the registration certificate bearing the registration number generated by SEBI.      

2. If request of name change being received then Designated depository participant shall have this effect and issue a letter along with a new certificate to the applicant acknowledging the name change request and a statement stating that such change does not prejudice the tax implication in India.

Procedure for seeking prior approval for change in control of Portfolio Managers

SEBI circular dated 2nd June,2022 effective from 15th June,2022 provides the following procedure for prior approval for changes in the control of portfolio managers.

  • Application to be made online by the portfolio manager for prior approval of SEBI through portal.
  • The approval granted shall be valid for six months from such approval.
  • Application for fresh registration w.r.t change in control shall be made to SEBI within 6 months from the date of prior approval.
  • The matters related to any scheme which require approval of NCLT, then application first shall be made to SEBI before filing it to NCLT.

Such change shall be informed to the investors in not less than 30 calendar months. All other provisions related to portfolio manager under this circular shall also apply.

Branches of Indian Banks operating in GIFT-IFSC – acting as Professional Clearing Member (PCM) of India International Bullion Exchange IFSC Limited (IIBX)

RBI’s notification dated June 07, 2022, provides instructions for the branches of Indian banks operating in GIFT-IFSC which can act as PCM of IIBX.

The GIFT-IFSC Banking Branch may clear and settle trade as a PCB IIBX transaction carried out by its clients as trading members of exchanges, provided that the total exposure which the branch would take on its clients should be determined by the Board of Directors in relation to the Bank's Tier 1 capital and GIFT-IFSC capital, on an ongoing monitoring.

However, the Bank must ensure that its GIFT-IFSC branch, in its PCM role, does not carry out any transaction / activity with IIBX other than that required as a professional clearing member.

Bank account details for FPI

Bank account details to which the payment is to be done electronically for FPI. SEBI circular dated 22nd June,2022 with effect from June 24, 2022, specifies bank account details for remittance of various payment of various SEBI fees in US $.

SEBI Board: Allows FPIs to participate in Exchange Traded Commodity Derivatives market

Capital markets regulator SEBI on 29th June,2022 decided to permit foreign portfolio investors to take part in the Exchange-Traded Commodity Derivatives Segment (ETCD), subject to certain risk management measures. The effective date will be notified vide a Circular.

Foreign Portfolio Investors (FPIs) will be allowed to trade in all non-agricultural commodity derivatives and select non-agricultural benchmark indices.

The present Eligible Foreign Entity route, which required actual exposure to Indian physical commodities, has been discontinued. Any foreign investor desirous of taking part in Indian ETCDs, with or without actual exposure to Indian physical commodities, can do so via the FPI route.

The position limits for FPIs shall be at par with the ones currently relevant for mutual fund scheme except for individuals, family, offices, and corporate bodies for whom the position limits allowed will be of 20 per cent of the client level position limit in a particular commodity derivatives contract, much like the position limits prescribed for currency derivatives.

SEBI Board also approves the amendments to the SEBI (Portfolio Managers) Regulations, 2020, to enhance prudential norms for investments by portfolio managers including investments in associates/ related parties.

Regulatory Updates–IFSC

IFSCA (Fund Management) Regulations, 2022

International Financial Services Centres Authority (IFSCA) has notified a comprehensive regulatory framework for Investment Funds in the official gazette on April 19, 2022, which shall come into force on the thirtieth day from the date of its publication in the Official Gazette.

IFSCA prescribes the manner of conduct, roles and limitations of all the entities that register themselves with the Authority as a Management Entity.

To undertake any fund management activities under the IFSCA regulations the entity must obtain A Certificate of Registration as a Fund Management Entity (FME)

FME seeks to bring together accredited investors and pool in their money to undertake the business of fund management under these regulations.

Fee Structure under the IFSCA (Fund Management) Regulations, 2022

The International Financial Services Centres Authority (IFSCA) on May 19, 2022, has issued Fee structure for entities registering as Fund Management Entity under the IFSCA (Fund Management) Regulations, 2022

The scope of the circular includes:

  • Application and Registration Fee
  • Fee for various activities
  • Applications for Regulatory Innovation Sand box, Fund lab, etc
  • Annual Fee

All existing entities that provide portfolio management services and register with the Authority must apply for a new registration under the Regulation within six months from the effective date of the regulations. These entities shall not be required to pay the application fee, registration fee and fees for portfolio management activities. However, the annual fee shall apply to such FMEs from the financial year after the year of original registration.

AIF Manager registered under the Authority must apply for a new registration under the Regulation within six months of the date of entry into force of the Regulation.

Existing AIF Manger do not have to pay the application fee.

All AIFs already registered with the authority before the effective date of IFSCA (Fund Management) Regulations, 2022 shall be considered as grandfathered and fresh registration for such funds / schemes shall not be required.

Registered FMEs filing ESG schemes with the Authority will not be required to pay the filing fee if its disclosures of the scheme are in line with the disclosure requirements by Authority for this scheme. The fee waiver will only apply to the first 10 ESG schemes registered with the Authority and each FME will only be able to benefit to avail the waiver only once.

Registered FMEs filing ETFs with the Authority will waive the application fee for the first 3 ETFs submitted by this FME to the Authority. The fee waiver only applies to the first 30 ETFs registered with the Office.

Clarification on investment in Bullion Depository Receipts (BDR) on India International Bullion Exchange (IFSC) Limited (IIBX) through the Liberalised Remittance Scheme (LRS) route

The International Financial Services Centres Authority vide circular dated June 17, 2022, has issued clarification on investment in Bullion Depository Receipts (BDR) on India International Bullion Exchange (IFSC) Limited (IIBX) via the Liberalized Remittance Scheme (LRS) route.

It is being clarified that, resident individuals, as referred to in the RBI circular on LRS dated February 16, 2021, are not permitted to transact/make investments in BDR on IIBX via the LRS route.