Budget 2015: Local funds to get access to more foreign money

MUMBAI: The Budget has done away with a major uncertainty for the mutual fund industry, regarding offshore fund management.

Domestic asset managers who have been pining for the ability to manage foreign money can now take heart as the government has changed the taxation structure relating to domicile of the fund manager.

So far, a foreign portfolio investor making use of local fund management expertise faced tax issues on account ‘permanent establishment’ (PE) norms. Location of such a fund manager in India for managing offshore funds constituted permanent establishment of the fund in India, which exposed the fund profits to tax in India at a rate in excess of 40 per cent.

This prevented foreign portfolio investors from handing over money to local asset managers and instead provided the same to managers abroad.

Now, the government has modified the norms to the effect that mere presence of a fund manager in India would not constitute PE of the offshore funds resulting in adverse tax consequences. This is expected to help local fund companies to attract more foreign money.