Section 9A of ITA, 1961 : Section 9A: Certain Activities Not To Constitute Business Connection In India

Explanation using Example

Imagine a scenario where an investment fund, let's call it "Global Growth Fund," which is based in Singapore, decides to invest in Indian markets. The fund is managed by a fund management company in India, "Mumbai Asset Managers." According to Section 9A of the Income-tax Act, 1961:

• Despite "Mumbai Asset Managers" conducting fund management activities in India on behalf of "Global Growth Fund," the latter's business connection in India is not established merely because of these activities.
• "Global Growth Fund" will not be considered an Indian resident simply because its fund manager operates from India.

To comply with Section 9A, "Global Growth Fund" must meet certain conditions, such as:

• It should not have more than 5% of its corpus invested by Indian residents.
• It should have at least 25 members who are not connected persons.
• No single member, along with connected persons, should hold more than 10% interest in the fund.

Moreover, "Mumbai Asset Managers" must also meet certain criteria to qualify as an eligible fund manager, like being registered with SEBI and not being an employee or a connected person of the "Global Growth Fund."

At the end of the financial year, "Global Growth Fund" must report to the Indian tax authorities that all the conditions of Section 9A have been met to ensure that the fund management activities conducted by "Mumbai Asset Managers" do not create a tax presence, or permanent establishment, in India for "Global Growth Fund."