The Central Board of Direct Taxes, in a notification on 3 August, liberalized the eligibility criteria for foreign portfolio investors (FPIs) by mandating that conditions specified in clauses (e), (f) and (g) of section 9A(3) of the Income Tax Act will not apply to category I and category II FPIs. These clauses provide for investment diversification conditions as follows: (e) minimum number of investors that cannot be connected persons in an investment fund; (f) limit on the participation interest of a member in the fund; and (g) limit on the participation interests of a maximum of 10 members in the fund.
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Section 9A stipulates that merely because an eligible investment fund manages its investments through an eligible investment manager situated in India, it will not be considered to have a business connection/residence in India (safe harbour provisions). In order to qualify as an eligible fund or an eligible investment manager, an investment fund and its manager must fulfil the conditions set out in section 9A(3) and 9A(4) of the Income Tax Act.
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