Foreign investors of AIFs in IFSC given exemption from furnishing PAN

The government has granted an exemption to non-residents (NRs) investing in category I and category II alternative inv­e­s­tment funds (AIFs) located in the International Financial Services Centre (IFSC) from furnishing the permanent account number (PAN).

This was a long-standing demand from foreign investors wanting to pool money at IFSC, instead of other offshore jurisdictions, such as Mauritius and Singapore, which do not req­uire investors to obtain PAN. Currently, a sizeable number of overseas investors do not invest directly in AIFs but through offshore feeder funds.

The exemption will apply provided the TDS (tax deducted at source) has been deducted from the investor’s income by the fund. The fund is required to give quarterly returns, providing all details of foreign investors’ income.

“Foreign investors have, for long, been demanding that they be exempted from tax compliance since the fund at IFSC would be withholding tax payable by investors. This would go a long way in making it easy for fund managers to attract foreign investors to a fund set up at IFSC and would give impetus to IFSC as a fund jurisdiction,” said Sunil Gidw­ani, partner, Nangia Andersen.

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“The CBDT (Central Board of Direct Taxes) notification of July 2019 had exempted non-resident investors of category I and category II AIFs located at IFSC from the requirement to file returns (subject to certain conditions and limitations). The PAN exemption now made available to the same class of investors…,” added Pallabi Ghosal, partner, AZB & Partners.

On Monday, the CBDT inser­ted rule 114AAB, notifying classes of persons to whom provisions of Section 139A for obtaining PAN will not apply.

According to the new rule, the provisions will not apply if a non-resident does not earn any income in India, other than the income from investment in category I or category II AIFs located at IFSC, and if the TDS on such income is deducted by the specified fund according to Section 194LBB.

The provisions will also not apply in case a non-resident investor furnishes details, such as name, address, country of residence and tax identification number in the country or specified territory of his/her residence or a unique number on the basis of which the non-resident is identified by the government of that country.

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