The mutual fund and the fund management community has written to the finance ministry and Sebi to abolish TDS on income on investments coming from overseas and managed by portfolio managers in India either through a gazette notification or through budgetary provisions.
“It has been argued that CBDT has to recognise that whether you operate in India or overseas, as long as the investor is coming from overseas and that originating country has got a double taxation treaty with India, then you don’t need to deduct TDS on such investments, even if we manage such money sitting in India,” said a mutual fund industry insider who did not wish to be named.
The source also added that Sebi is positive on this and even government officials are open to this change.
CBDT says that if you manage the money in India you have to deduct TDS and if you manage money from outside then you don’t need to deduct tax. As a result of this regulation Indian portfolio managers are only playing the advisory role for such investments coming to India while the fund is managed by portfolio managers abroad in order to avoid the tax on the investment income.
Over the last few years such business has been growing at a fast pace and the industry expects that this inflow is only going to rise. Some fund houses have their overseas fund under advisory as big as their domestic equity AUM.