My client is an offshore fund that has moved its portfolio manager to Mumbai. The Assessing Officer says the manager is a business connection and the whole fund is now taxable in India. Is there a safe harbour?
Yes, but it is a conditional one. Section 9A(1) provides that, notwithstanding section 9(1), the fund management activity carried out through an eligible fund manager acting on behalf of an eligible investment fund shall not constitute a business connection in India of that fund, and section 9A(2) provides that, notwithstanding section 6, the fund shall not be said to be resident in India merely because the manager undertaking fund management activities on its behalf is situated in India. The protection is available only where the fund answers the definition in section 9A(3), which carries thirteen lettered conditions, (a) to (m), every one of which has to be satisfied.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 9A of the Income-tax Act, 1961; clause (3)(c) as amended by Act No. 7 of 2025, w.e.f. 1-4-2025. It bears on section 9A, section 9A(1), section 9A(2), section 9A(3), section 9A(6), section 9A(7), section 9(1), section 6, section 90, section 90A, section 102 of the Income Tax Act 1961, in Residence & Treaty Benefit and How Tax Law Is Read matters.
This is the whole of the offshore-fund-manager regime, and it is lost or won on the conditions, not on the safe harbour. Three of them are where files actually fail. Condition (c) — the resident-participation ceiling of five per cent of the corpus — was rewritten with effect from 1 April 2025: it is now tested on two fixed dates, the first day of April and the first day of October of the previous year, with a four-month period in which a breach on either of those dates can be cured. Those two changes are confirmed both in the Department's own text of the section and, independently, in clause 5(a) of the Finance Bill 2025 and in the Memorandum explaining it. The Department's text additionally sets clause (c) out with the words "or indirectly" omitted, so that the participation measured is direct participation only, and carries a footnote attributing that omission to Act No. 7 of 2025 with effect from 1 April 2025 — but that omission appears in no other source traced here and is positively inconsistent with the Bill as introduced and the Memorandum, both of which set out clause (c) as retaining "directly or indirectly". Until the enacted Act is seen, do not advise that indirect participation is outside the condition; compute both figures. Condition (j) — a monthly average corpus of not less than one hundred crore rupees — is an average, not a year-end figure, and a fund that dips below it for part of the year has a problem no valuation report will fix. Condition (m) — remuneration to the manager not less than the prescribed amount — is the one that turns a commercial fee negotiation into a tax condition. Note also what section 9A does NOT do: sub-section (6) says nothing in the section excludes from the fund's total income anything that would have been included irrespective of whether the manager's activity constituted a business connection, so income that is chargeable on some other footing (for example, income arising from an Indian asset) stays chargeable; and sub-section (7) says the section has no effect at all on the computation of the fund manager's own total income, so the manager remains fully taxable in India on his fee.
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Not a case. Section 9A(3) defines the eligible investment fund as a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit, and which fulfils the following conditions: (a) the fund is not a person resident in India; (b) the fund is a resident of a country or specified territory with which an agreement under section 90(1) or section 90A(1) has been entered into, or is established or incorporated or registered in a country or specified territory notified by the Central Government; (c) the aggregate participation or investment in the fund, directly by persons resident in India, does not exceed five per cent of the corpus of the fund as on the first day of April and the first day of October of the previous year, with a first proviso excluding any contribution made by the eligible fund manager during the first three years of operation of the fund not exceeding twenty-five crore rupees, and a second proviso deeming the condition satisfied where a breach on either date is cured within four months of that date; (d) the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; (e) the fund has a minimum of twenty-five members who are, directly or indirectly, not connected persons; (f) no member along with connected persons has participation interest, directly or indirectly, exceeding ten per cent; (g) the aggregate participation interest, directly or indirectly, of ten or fewer members along with their connected persons is less than fifty per cent; (h) the fund does not invest more than twenty per cent of its corpus in any entity; (i) the fund makes no investment in its associate entity; (j) the monthly average of the corpus of the fund is not less than one hundred crore rupees, with a proviso for a fund established or incorporated during the previous year measuring the corpus at the end of twelve months from the last day of the month of establishment or incorporation, and a further proviso disapplying the clause to a fund wound up in the previous year; (k) the fund does not carry on or control and manage, directly or indirectly, any business in India; (l) the fund is neither engaged in any activity constituting a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India, other than the activities undertaken by the eligible fund manager on its behalf; and (m) the remuneration paid by the fund to an eligible fund manager in respect of the fund management activity is not less than the amount calculated in the prescribed manner. A proviso at the end of sub-section (3) disapplies conditions (e), (f) and (g) to an investment fund set up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund as the Central Government may, subject to conditions, notify. Sub-section (9) supplies the definitions: 'associate' means an entity in which a director, trustee, partner, member or fund manager of the investment fund, or a director, trustee, partner or member of the fund manager, holds individually or collectively more than fifteen per cent of the share capital or interest; 'connected person' has the meaning assigned in clause (4) of section 102; 'corpus' means the total amount of funds raised for investment by the fund as on a particular date; and 'specified regulations' means the SEBI (Portfolio Managers) Regulations 1993 or the SEBI (Investment Advisers) Regulations 2013 or such other SEBI regulations as may be notified.
The provision operates as follows. Sub-section (1), which opens 'Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section', 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 the fund shall not constitute business connection in India of the fund. Sub-section (2), which opens 'Notwithstanding anything contained in section 6', provides that an eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager undertaking fund management activities on its behalf is situated in India. Sub-section (3) makes the fund an 'eligible investment fund' only if it is established, incorporated or registered outside India, collects funds from its members for investing for their benefit, and fulfils each of conditions (a) to (m). Sub-section (6) provides that nothing in the section excludes from the fund's total income any income which would have been so included irrespective of whether the eligible fund manager's activity constituted the fund's business connection in India. Sub-section (7) provides that nothing in the section has any effect on the scope of total income or the determination of total income in the case of the eligible fund manager. Sub-section (8) provides that the section is to be applied in accordance with such guidelines and in such manner as the Board may prescribe.
Not a judicial route. The legislative technique is a conditional carve-out from two separate charging mechanisms at once. Section 9(1) would otherwise treat the manager's activity in India as a business connection of the fund and bring the fund's income within the deeming provision; section 6 would otherwise be capable of treating the fund as resident where its control and management sit with a manager in India. Section 9A neutralises both, but only for a fund that meets a specification designed to establish that the fund is a genuine, widely held, externally regulated offshore pool rather than an Indian business wearing an offshore label: hence the residence and treaty conditions in (a) and (b), the resident-participation ceiling in (c), the diversification and concentration conditions in (e) to (i), the size floor in (j), and the two conditions in (k) and (l) that keep the fund itself out of Indian business. Condition (m) exists because the safe harbour would otherwise permit the profit to be left offshore by underpaying an Indian manager, and sub-section (7) closes the same gap from the other side by leaving the manager's own income fully within the Indian net.
Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section, 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.
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Handle my notice → Ask a CA on WhatsAppYes, but it is a conditional one. Section 9A(1) provides that, notwithstanding section 9(1), the fund management activity carried out through an eligible fund manager acting on behalf of an eligible investment fund shall not constitute a business connection in India of that fund, and section 9A(2) provides that, notwithstanding section 6, the fund shall not be said to be resident in India merely because the manager undertaking fund management activities on its behalf is situated in India. The protection is available only where the fund answers the definition in section 9A(3), which carries thirteen lettered conditions, (a) to (m), every one of which has to be satisfied. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 9A, section 9A(1), section 9A(2), section 9A(3), section 9A(6), section 9A(7), section 9(1), section 6, section 90, section 90A, section 102 of the Income Tax Act 1961. It is reported as Section 9A of the Income-tax Act, 1961; clause (3)(c) as amended by Act No. 7 of 2025, w.e.f. 1-4-2025. This is the whole of the offshore-fund-manager regime, and it is lost or won on the conditions, not on the safe harbour. Three of them are where files actually fail. Condition (c) — the resident-participation ceiling of five per cent of the corpus — was rewritten with effect from 1 April 2025: it is now tested on two fixed dates, the first day of April and the first day of October of the previous year, with a four-month period in which a breach on either of those dates can be cured. Those two changes are confirmed both in the Department's own text of the section and, independently, in clause 5(a) of the Finance Bill 2025 and in the Memorandum explaining it. The Department's text additionally sets clause (c) out with the words "or indirectly" omitted, so that the participation measured is direct participation only, and carries a footnote attributing that omission to Act No. 7 of 2025 with effect from 1 April 2025 — but that omission appears in no other source traced here and is positively inconsistent with the Bill as introduced and the Memorandum, both of which set out clause (c) as retaining "directly or indirectly". Until the enacted Act is seen, do not advise that indirect participation is outside the condition; compute both figures. Condition (j) — a monthly average corpus of not less than one hundred crore rupees — is an average, not a year-end figure, and a fund that dips below it for part of the year has a problem no valuation report will fix. Condition (m) — remuneration to the manager not less than the prescribed amount — is the one that turns a commercial fee negotiation into a tax condition. Note also what section 9A does NOT do: sub-section (6) says nothing in the section excludes from the fund's total income anything that would have been included irrespective of whether the manager's activity constituted a business connection, so income that is chargeable on some other footing (for example, income arising from an Indian asset) stays chargeable; and sub-section (7) says the section has no effect at all on the computation of the fund manager's own total income, so the manager remains fully taxable in India on his fee. If it applies to you, the first step is this: Take the thirteen conditions in section 9A(3) one at a time and paper each of them separately; a note that says 'conditions satisfied' will not survive a section 9A(5) scrutiny.
Not a case. Section 9A(3) defines the eligible investment fund as a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit, and which fulfils the following conditions: (a) the fund is not a person resident in India; (b) the fund is a resident of a country or specified territory with which an agreement under section 90(1) or section 90A(1) has been entered into, or is established or incorporated or registered in a country or specified territory notified by the Central Government; (c) the aggregate participation or investment in the fund, directly by persons resident in India, does not exceed five per cent of the corpus of the fund as on the first day of April and the first day of October of the previous year, with a first proviso excluding any contribution made by the eligible fund manager during the first three years of operation of the fund not exceeding twenty-five crore rupees, and a second proviso deeming the condition satisfied where a breach on either date is cured within four months of that date; (d) the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; (e) the fund has a minimum of twenty-five members who are, directly or indirectly, not connected persons; (f) no member along with connected persons has participation interest, directly or indirectly, exceeding ten per cent; (g) the aggregate participation interest, directly or indirectly, of ten or fewer members along with their connected persons is less than fifty per cent; (h) the fund does not invest more than twenty per cent of its corpus in any entity; (i) the fund makes no investment in its associate entity; (j) the monthly average of the corpus of the fund is not less than one hundred crore rupees, with a proviso for a fund established or incorporated during the previous year measuring the corpus at the end of twelve months from the last day of the month of establishment or incorporation, and a further proviso disapplying the clause to a fund wound up in the previous year; (k) the fund does not carry on or control and manage, directly or indirectly, any business in India; (l) the fund is neither engaged in any activity constituting a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India, other than the activities undertaken by the eligible fund manager on its behalf; and (m) the remuneration paid by the fund to an eligible fund manager in respect of the fund management activity is not less than the amount calculated in the prescribed manner. A proviso at the end of sub-section (3) disapplies conditions (e), (f) and (g) to an investment fund set up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund as the Central Government may, subject to conditions, notify. Sub-section (9) supplies the definitions: 'associate' means an entity in which a director, trustee, partner, member or fund manager of the investment fund, or a director, trustee, partner or member of the fund manager, holds individually or collectively more than fifteen per cent of the share capital or interest; 'connected person' has the meaning assigned in clause (4) of section 102; 'corpus' means the total amount of funds raised for investment by the fund as on a particular date; and 'specified regulations' means the SEBI (Portfolio Managers) Regulations 1993 or the SEBI (Investment Advisers) Regulations 2013 or such other SEBI regulations as may be notified. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The provision operates as follows. Sub-section (1), which opens 'Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section', 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 the fund shall not constitute business connection in India of the fund. Sub-section (2), which opens 'Notwithstanding anything contained in section 6', provides that an eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager undertaking fund management activities on its behalf is situated in India. Sub-section (3) makes the fund an 'eligible investment fund' only if it is established, incorporated or registered outside India, collects funds from its members for investing for their benefit, and fulfils each of conditions (a) to (m). Sub-section (6) provides that nothing in the section excludes from the fund's total income any income which would have been so included irrespective of whether the eligible fund manager's activity constituted the fund's business connection in India. Sub-section (7) provides that nothing in the section has any effect on the scope of total income or the determination of total income in the case of the eligible fund manager. Sub-section (8) provides that the section is to be applied in accordance with such guidelines and in such manner as the Board may prescribe.
Not a judicial route. The legislative technique is a conditional carve-out from two separate charging mechanisms at once. Section 9(1) would otherwise treat the manager's activity in India as a business connection of the fund and bring the fund's income within the deeming provision; section 6 would otherwise be capable of treating the fund as resident where its control and management sit with a manager in India. Section 9A neutralises both, but only for a fund that meets a specification designed to establish that the fund is a genuine, widely held, externally regulated offshore pool rather than an Indian business wearing an offshore label: hence the residence and treaty conditions in (a) and (b), the resident-participation ceiling in (c), the diversification and concentration conditions in (e) to (i), the size floor in (j), and the two conditions in (k) and (l) that keep the fund itself out of Indian business. Condition (m) exists because the safe harbour would otherwise permit the profit to be left offshore by underpaying an Indian manager, and sub-section (7) closes the same gap from the other side by leaving the manager's own income fully within the Indian net. In the words reproduced by the source cited on this page: "Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section, 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."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 9A of the Income-tax Act, 1961; clause (3)(c) as amended by Act No. 7 of 2025, w.e.f. 1-4-2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 9A, section 9A(1), section 9A(2), section 9A(3), section 9A(6), section 9A(7), section 9(1), section 6, section 90, section 90A, section 102, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The provision operates as follows. Sub-section (1), which opens 'Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section', 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 the fund shall not constitute business connection in India of the fund. Sub-section (2), which opens 'Notwithstanding anything contained in section 6', provides that an eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager undertaking fund management activities on its behalf is situated in India. Sub-section (3) makes the fund an 'eligible investment fund' only if it is established, incorporated or registered outside India, collects funds from its members for investing for their benefit, and fulfils each of conditions (a) to (m). Sub-section (6) provides that nothing in the section excludes from the fund's total income any income which would have been so included irrespective of whether the eligible fund manager's activity constituted the fund's business connection in India. Sub-section (7) provides that nothing in the section has any effect on the scope of total income or the determination of total income in the case of the eligible fund manager. Sub-section (8) provides that the section is to be applied in accordance with such guidelines and in such manner as the Board may prescribe. It arises in Residence & Treaty Benefit and How Tax Law Is Read matters, on section 9A, section 9A(1), section 9A(2), section 9A(3), section 9A(6), section 9A(7), section 9(1), section 6, section 90, section 90A, section 102 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For condition (c), fix the participation position as at 1 April and 1 October of the previous year, not at year end. Compute BOTH direct and indirect resident participation and keep both on file: the Department's own text of the section measures direct participation only, the words "or indirectly" having been omitted with effect from 1 April 2025, but the Finance Bill 2025 and its Memorandum do not carry that omission, so the point is not safe to rely on. If the five per cent ceiling was crossed on either of those two dates, use the second proviso to condition (c): the condition is deemed satisfied if it is satisfied within four months of that date, so redemption or dilution inside that window saves the year. Leave out of the condition (c) computation any contribution made by the eligible fund manager himself during the first three years of the fund's operation, up to twenty-five crore rupees — the first proviso excludes it. Where the fund was set up by a foreign Government or a foreign Central Bank, or is a sovereign fund, check the proviso at the end of section 9A(3): conditions (e), (f) and (g) — the twenty-five member floor, the ten per cent single-member cap and the fifty per cent top-ten cap — do not apply to it at all. Track the monthly average corpus through the year against the one hundred crore rupee floor in condition (j), and if the fund was established during the previous year rely on the first proviso, which measures the corpus at the end of twelve months from the last day of the month of establishment. Do not treat section 9A as an exemption. Sub-section (6) preserves the charge on anything taxable independently of the business-connection question, and sub-section (7) leaves the manager's own income untouched.
Still good law. The text stated here is the Department's own current text of section 9A; the older published versions of the section are archived. Clauses (j) and (m) and the proviso to sub-section (3) have been checked again against an earlier published version and come back in identical words, which is the corroboration relied on. No judicial decision construing section 9A has been traced: a search on the phrases 'section 9A' and 'eligible fund manager' returns only the Income-tax Rules and the SEBI Portfolio Managers Regulations, and no judgment or Tribunal order. No check has been made for a writ challenge to the provision, and none for any notification issued under the proviso to sub-section (3) or under clause (b) of sub-section (3). The two testing dates — 1 April and 1 October — and the four-month cure proviso are confirmed on a second, independent route: clause 5(a) of the Finance Bill 2025 and the Memorandum explaining that Bill, both stating a date of effect of 1 April 2025. One conflict is unresolved and matters. The omission of the words 'or indirectly' from clause (c) is asserted only by the Department's own text, in the body and in an inline footnote, and is contradicted by both of those documents, which set clause (c) out as retaining 'directly or indirectly'. The Finance Act 2025 as enacted has not been located. Until the enacted Act is seen, a practitioner should compute both direct and indirect resident participation and should not advise that indirect participation falls outside the condition. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a statutory entry, not a decision, and it carries no bench and no result. The date in decided_on is not a decision date. It is 1 April 2025, the date from which the version of section 9A stated here takes effect: the Department's own amendment footnotes record that the words 'or indirectly' in clause (c) were omitted by Act No. 7 of 2025 with effect from 1 April 2025 (footnote 16), that the words fixing the two testing dates were inserted by the same Act from the same date (footnote 17), and that the second proviso to clause (c), the four-month cure, was likewise inserted by that Act from that date (footnote 17a). The date on which section 9A was first inserted into the Act has not been established and is therefore not stated anywhere in this entry. A warning that a reader checking the section for himself will need. The number '9A' belongs to several statutes, and a search for it will not necessarily return this section. A section 9A of the Advocates Act 1961, headed 'Constitution of legal aid committees', and a section 9A of the Chartered Accountants Act 1949, headed 'Co-ordination Committee', are both published under that number, and neither has anything to do with this provision. Confirm the Act name and the section heading before reading a word. No judicial decision construing section 9A has been traced; the validity note records what was searched for and what was not. In particular, nothing on this page states how any of the thirteen conditions in sub-section (3) has been applied in a contested case, and the conflict recorded in the validity note about the words 'or indirectly' in clause (c) is not resolved here. A practitioner advising on a fund that relies on the safe harbour should settle that point from the enacted Finance Act 2025 before the participation figure is certified for either testing date. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The provision operates as follows. Sub-section (1), which opens 'Notwithstanding anything contained in sub-section (1) of section 9 and subject to the provisions of this section', 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 the fund shall not constitute business connection in India of the fund. Sub-section (2), which opens 'Notwithstanding anything contained in section 6', provides that an eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager undertaking fund management activities on its behalf is situated in India. Sub-section (3) makes the fund an 'eligible investment fund' only if it is established, incorporated or registered outside India, collects funds from its members for investing for their benefit, and fulfils each of conditions (a) to (m). Sub-section (6) provides that nothing in the section excludes from the fund's total income any income which would have been so included irrespective of whether the eligible fund manager's activity constituted the fund's business connection in India. Sub-section (7) provides that nothing in the section has any effect on the scope of total income or the determination of total income in the case of the eligible fund manager. Sub-section (8) provides that the section is to be applied in accordance with such guidelines and in such manner as the Board may prescribe.
TaxSphere, “Statutory position — section 9A: an offshore fund managed from India has no business connection here, but only if every condition in section 9A(3) is met”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-9a-eligible-investment-fund-safe-harbour-and-conditions/ (validity last checked 2026-09-08)
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My offshore fund breached one of the section 9A(3) conditions for part of the year, and one of its investors is itself a pooling vehicle. Is the safe harbour lost for the whole year?
I am setting up an India-based manager for an offshore fund. What does the manager himself have to satisfy, and is there a floor on the fee the fund must pay him?
Our fund manager is being set up in GIFT City rather than in Mumbai. Does that make any difference to the section 9A conditions?
We want to move an offshore fund's assets into a GIFT City vehicle and issue units in the new fund to the existing investors. Does that trigger capital gains, either for the fund or for the investors?
