Updated on: August 21st, 2021 5:59 PM

Income-tax (2nd Amendment) Rules, 2021

The Central Board of Direct Taxes (CBDT) on March 09, 2021, has issued the Income-tax (2nd Amendment) Rules, 2021 to further amend the Income-tax Rules, 1962. The amendment is brought under rule 10V  for Computation of Remuneration payable to Fund Manager. This is released in Gazette as per the requirement of the Government of India and this article will provide details on the same.

Synopsis of Income-tax (2nd Amendment) Rules, 2021

• CBDT has amended Rule 10V of the Income-tax Rules, 1962 and two new provisos have been added in the sub-rule 12 providing a manner for computation of remuneration payable to fund manager.
• With this new rule, CBDT announced that sub-rules (3) to (12) of rule 10VA shall apply to the application made by the assessee before the CBDT seeking lower remuneration payable to the fund manager

Calculation of the amount of remuneration to be paid by the fund to a fund manager – Subsection 12 of Rule 10

The sub-rule 12 of the Rule 10V species the procedure to calculate the amount of remuneration to be paid by the fund to a fund manager, referred to in clause (m) of sub-section (3) of section 9:

• In case the fund is a Category-I foreign portfolio investor the amount of remuneration shall be 0.10 per cent of the asset under management.
• In other cases, the amount of remuneration will be as follows:

• • 0.30 per cent of the asset under management
  • 10 per cent of profits derived by the fund more than the specified hurdle rate from the fund management activity undertaken by the fund manager, where it is entitled only to remuneration linked to the income or profits derived by the fund;

• 50 per cent of the management fee, whether like the fixed charge or linked to the income or profits derived by the fund from the management activity undertaken by the fund manager, paid by such fund in respect of the fund management activity undertaken by the fund manager as reduced by the amount incurred towards operational expenses including distribution expenses if any:

Provided that the provisions of this sub-clause shall apply only in case the fund is also making payment of management fee to any other fund manager: In case the amount of remuneration is lower than the amount arrived likewise, the fund may, at its option, apply to the Member, Central Board of Direct Taxes seeking approval of the Board under for that lower amount to be the amount of remuneration, and, on receipt of such application the Board may, after satisfying itself considering the relevant facts, approve such lower amount to be the amount of remuneration.

Application to CBDT for seeking approval of the Board – Rule 10VA

The fund seeking approval may make an application in writing, enclosing relevant documents and evidence, to the Member, Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi having supervision and control over the work of Foreign Tax and Tax Research (FT&TR) Division].

• The application shall be made three months before the beginning of the previous year for which the fund seeks approval.

Income-tax (2nd Amendment) Rules, 2021 provides the procedure to make such an application

• The application shall be made three months before the beginning of the previous year for which the fund seeks approval.
• A committee as notified by the Board, shall examine the application and submit its recommendations regarding grant of approval or otherwise and the conditions, if any, subject to which such an approval is to be granted.
• The committee shall be headed by a Principal Chief Commissioner or Chief Commissioner, as the case may be, and consist of two other Income-tax authorities, not below the rank of Commissioner.
• The committee on behalf of the Board may, before giving its recommendation, call for such documents or information from the investment fund as it may consider necessary and may call for further details or information from the fund as well as from the Income-tax authorities and other Departments or agencies, as it may deem fit.

The Board, based on the recommendations of the committee, shall, within sixty days from the end of the month in which the application has been made by an order in writing, grant approval to the fund subject to such conditions as it may deem fit; or for reasons to be recorded in writing, reject the application.

• Provided also that the provisions of sub-rule (3) of rule 10VA shall not apply to an application made under the second proviso, if it is for the previous year beginning on the 1st day of April 2021, and made on or before the 1st day of February 2021

Amendment in Prescribed Date for Application Submission

The amount of remuneration is lower than the amount arrived, the fund may, at its option, apply to the Member, Central Board of Direct Taxes seeking approval of the Board under the said rule for that lower amount to be the amount of remuneration, and, on receipt of such application the Board may, after satisfying itself considering the relevant facts, approve such lower amount to be the amount of remuneration. The application shall be made three months before the beginning of the previous year for which the fund seeks approval. As per the Income-tax (2nd Amendment) Rules, 2021,  this condition will not apply to an application made, if it is for the previous year beginning on the 1st day of April 2021, and made on or before the 1st day of February 2021. The official notification pertaining to the Income-tax (2nd Amendment) Rules, 2021 is as follows: