The recent activity regarding domestic funds and managers is as follows:

  • a as of the end of June 2017,2 total assets under management for mutual funds increased to around 18.962 trillion rupees;
  • b as of April 2017, 3153 alternative investment funds (AIFs) were registered with the regulator;4
  • c as of July 2017, six infrastructure investment trusts were registered and none were registered as real estate investment trusts;
  • e as of July 2017, only one collective investment scheme manager was registered;
  • f as of 30 April 2017, portfolio managers had 82,785 clients and 12.661 trillion rupees of assets under management across discretionary, non-discretionary and advisory services;5 and
  • g as of 30 April 2017, 7436 investment advisers and 4307 research analysts were registered with the regulator.

The recent activity regarding offshore funds and investors is as follows:

  • a there are approximately 8,8078 foreign portfolio investors and 218 foreign venture capital investors registered with the regulator;9 and
  • b foreign direct investment inflows in general have increased, showing an increase of 11 per cent in 2016–2017 as compared to the last financial year.10


The funds industry in India is primarily regulated by the Securities and Exchange Board of India (SEBI), the securities market regulator, pursuant to the legal and regulatory framework of the SEBI Act 1992 and regulations issued thereunder. The resident investors of these funds are subject to industry regulations, and their investments are controlled by the restrictions notified by the regulator. For example, investments by Indian insurance companies in AIFs are subject to conditions notified by the Insurance Regulatory and Development Authority (IRDA), while investments by Indian banks in AIFs are subject to conditions notified by the Reserve Bank of India (RBI).

In addition to applicable SEBI regulations, funds or fund investments that have a cross-border element – which could be on account of the pooling vehicle being set up outside India, the investors being non-residents or the investment manager being owned or controlled by non-residents – need to comply with the requirements of the exchange control regulations issued by the RBI.

The table below lists the regulations governing Indian funds and offshore funds investing into Indian securities, as well as regulations governing service providers.

Type of fund



Domestic funds

Mutual funds

SEBI (Mutual Funds) Regulations 1996

Public market funds

Real estate investment trusts (REITs)

SEBI (REIT) Regulations 2014

Public market funds

Infrastructure investment trusts (INVITs)

SEBI (INVIT) Regulations 2014

Public market funds

Alternative investment funds (AIFs)

SEBI (AIF) Regulations 2012


Collective investment schemes (CIS)

SEBI (CIS) Regulations 1999


Fund managers and other service providers

Portfolio managers

SEBI (Portfolio Managers) Regulations 1993

Managing funds or securities of clients

Investment advisers

SEBI (Investment Advisers) Regulations 2013

Providing ‘investment advice’. AIF managers are exempt from registration

Research analysts

SEBI (Research Analysts) Regulations 2014

Providing buy and sell recommendations or research reports


SEBI (Debenture Trustee) Regulations 1993

In case of REITs and INVITs, the trustee needs to be registered with SEBI

Syndication services

SEBI (Merchant Bankers) Regulations 1992

Acting as placement agent for the issuer or otherwise acting in furtherance of a private offering or public offering of an issuer, etc.

Offshore funds

Portfolio investments

SEBI (Foreign Portfolio Investors) Regulations 2014

Additionally to comply with exchange control regulations – the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000 (FEMA 20), Schedule 2

Venture capital investments

SEBI (Foreign Venture Capital Investor) Regulations 2000

Additionally to comply with exchange control regulations (FEMA 20, Schedule 5)

Non-portfolio and foreign direct investment

Additionally to comply with exchange control regulations (FEMA 20, Schedule 1)

i AIFs

AIFs are investment funds that mobilise pools of capital from sophisticated investors with a minimum investment ticket size of 10 million rupees. AIFs can be registered under any of the following three categories:

  • a Category I, which includes social venture funds, small and medium-sized enterprise (SME) funds, infrastructure funds, venture capital funds and angel funds;
  • b Category II, which includes AIFs that do not fall under Category I or Category III – these include private equity and debt funds; and
  • c Category III, which includes AIFs that employ diverse or complex trading strategies and may employ leverage (these are primarily for hedge funds). However, Indian funds proposing to use fund level leverage or that invest primarily in listed equity investments (including long-only funds) also need to seek registration as Category III AIFs.

AIFs are becoming the vehicles of choice in the alternate assets space as the structure can be customised to suit diverse investment strategies, sector exposure or target asset classes. These funds also enjoy a special taxation regime, thereby adding a sense of certainty and clarity regarding tax implications for AIF investors. However, several tax issues still need to be addressed.

ii Mutual funds

Mutual funds (MF) operate in the retail segment (with limited exceptions for private placement for specified types of schemes) by raising moneys from the public through the sale of units under schemes when they are set up. Such solicitation is required to be conducted through the issue of an offer document, which is scrutinised by SEBI. As would be expected from a retail product, the offer document is required to provide in-depth detail on extensive disclosures. The SEBI (Mutual Funds) Regulations 1996 (the MF Regulations) set out the eligibility criteria and also codify the rights and obligations of the sponsor, trustee (in addition to trust law), manager and custodian, including regarding the contents of the trust deed and the investment management agreement. The MF Regulations stipulate broad-basing requirements at each scheme level and prescribe the investment conditions, including a cap on exposure to investee companies for investments by way of equity and debt.

iii Real estate investment trusts and infrastructure investment trusts

Real estate investment trusts (REITS) and infrastructure investment trusts (INVITs) are regulated by the SEBI (REIT) Regulations 2014 (the REITs Regulations) and the SEBI (INVITs) Regulations 2014 (the INVITs Regulations), which are generally quite similar. REITs and INVITs are required to invest primarily in completed, revenue-generating real estate assets and distribute 90 per cent of the earnings to the investors.

Units of REITs and INVITs are issued by way of a public offer through an offer document that is scrutinised by SEBI. The INVITs Regulations do envisage private placement, subject to certain conditions. REITs and INVITs are not permitted to have multiple classes of units or schemes. It is mandatory that the units of the trust (including where privately placed) are listed on a stock exchange in India. Detailed investment conditions and restrictions have also been prescribed in both sets of regulations. The regulations specify minimum standards of net worth, and qualifications and experience for, and rights and responsibilities of, sponsors, managers and trustees, as well as rights and responsibilities of valuers and auditors.

Structural amendments

SEBI amended the REITs Regulations11 and the INVITs Regulations12 to remove some of the gating issues. Some of the key amendments are as follows:

  • a REITs and INVITs are permitted to hold special purpose vehicles via a two-tier holding structure;
  • b the category of assets that can constitute the asset portfolio of REITs has been broadened to include:

• hotels, hospitals and convention centres forming part of composite real estate projects; and

• common infrastructure for composite real estate projects, industrial parks and special economic zones;

  • c REITs and INVITs can issue units with subordinate voting or other rights to sponsors and their associates;
  • d after the listing of an INVIT, in certain situations, promoters must continue holding 15 per cent (previously 25 per cent) for a period of three years; and
  • e a minimum subscription of 90 per cent of the issue size is required for a successful public offer of the REIT or INVIT, failing which the moneys have to be refunded.
Expanding the scope of investors

SEBI, IRDA and the RBI recently amended their respective regulatory frameworks13 to permit mutual funds, insurance companies and banks to invest in REITs and INVITs, subject to several conditions. These regulators have stipulated the following conditions:

  • a a mutual fund (including all its schemes) cannot own more than 10 per cent of units issued by a single issuer of REITs and INVITs;
  • b a mutual fund scheme cannot invest more than 10 per cent of its net asset value in units of REITs and INVITs;
  • c an insurance company cannot invest more than 3 per cent of its respective fund size or more than 5 per cent of the units issued by a single REIT or INVIT, whichever is lower; and
  • d a bank cannot invest more than 10 per cent of the unit capital of a single REIT or INVIT.
vi Offshore funds

Foreign investment in India is required to comply with the Foreign Exchange Management Act 1999 and FEMA 20, which stipulate various routes for investing in Indian securities and funds.

Offshore funds and offshore investors are permitted to invest in AIFs under the automatic route (without need for government approval). An offshore fund or offshore investor may choose to invest directly in Indian companies by complying with the conditions under the foreign direct investment (FDI) policy.

An offshore fund seeking to make investments in listed securities requires registration as a foreign portfolio investor (FPI) for which it must satisfy the prescribed eligibility criteria, including being a resident of certain countries (i.e., jurisdictions that are compliant with the Financial Action Task Force) and jurisdictions whose securities regulators are signatories to the International Organization of Securities Commissions’ multilateral memorandum of understanding. The application for registration is to be made before any designated depository participant (DDP) that has been delegated the authority under the SEBI (Foreign Portfolio Investors) Regulations 2014 (the FPI Regulations). There are three categories under which registration can be obtained by FPIs, ranging from sovereign funds to unregulated entities. An FPI cannot hold more than 10 per cent of the total equity capital of a listed company. The FPI Regulations also set out the list of permissible securities for investments by FPIs.

Offshore funds seeking to primarily invest in the unlisted space may choose to seek registration as a foreign venture capital investor (FVCI) under the SEBI (Foreign Venture Capital Investors) Regulations 2000 (the FVCI Regulations) because of certain benefits accorded to FVCIs that are not available to FDI investors, which include: free entry and exit pricing; exemption from certain lock-in and public offer requirements; and ability to invest in optionally convertible instruments. FVCIs are, however, subject to certain investment conditions, including investing at least 66.67 per cent of their corpus in unlisted equity or equity-linked instruments. An FVCI application is to be made before SEBI, which acts as single-window clearance for approval from SEBI as well as the RBI. FVCIs need to abide by any additional conditions that may be imposed by the RBI when granting approval.


Indian funds are generally set up as trusts (MFs, REITs and INVITs are mandated to be set up as trusts by the respective regulations). The SEBI (Alternative Investment Funds) Regulations 2012 (the AIF Regulations) provide flexibility for AIFs to be established as trusts, companies, limited liability partnerships (LLPs) or bodies corporate. However, most AIFs are formed as trusts because of administrative ease and enabling tax regime for trusts.14 An Indian fund is required to have an Indian manager.

An offshore fund or an offshore investor may invest in an Indian fund or directly in the Indian portfolio companies, subject to restrictions under the RBI exchange control regulations. Cross-border funds can be set up as master-feeder structures (i.e., offshore funds that invest in Indian funds) or parallel funds (i.e., offshore funds that co-invest in Indian portfolio companies alongside the Indian funds). Indian entities are permitted to act as managers or advisers to offshore funds.


The funds and investment industry witnessed steady growth in the last fiscal year. Total assets under management of the mutual fund industry reached an all-time high of approximately 18.9 trillion rupees by the end of June 201715 and, according to another report,16 the mutual fund industry has grown at a compounded annual growth rate of 12.4 per cent from 2007 to 2016. As of 30 June 2017, AIFs raised commitments of approximately 920 billion rupees17 – Category II AIFs (typically private equity and debt funds) alone accounted for about 52 per cent of this amount. FDI inflows for the 2016–2017 financial year amounted to 2.91696 billion rupees.18

As per Bain’s India Private Equity Report 2017, India continued to be an attractive destination for investments, as funds allocated to India increased by 8 per cent over 2016 and Indian dry powder amounted to approximately US$9 billion, indicating no dearth of capital for good-quality deals.19 As per the same report, total private equity deal value in 2016 was the second-highest since 2008 at approximately US$16.8 billion.

As of 7 September 2017, the net investment by FPIs (including deemed FPIs) for the calendar year 2017 stood at a positive figure of 1.71884 trillion rupees, with about 1.30326 trillion rupees in debt.20


The past 12–18 months have borne witness to several legal, regulatory and tax amendments as well as the creation of critical judicial precedents that will have an impact on fund structures, investments and exits. The funds industry will therefore be impacted not only because of changes in applicable laws and regulations but also because of new opportunities (and additional challenges) emerging from other amendments. For example, the coming into effect of the Insolvency and Bankruptcy Code 2016 (IBC), which will lead to increased participation from strategic investors and turnaround funds, as well as investors picking up stakes in stressed and distressed investment opportunities; the efforts of the government to refine the International Financial Service Centre regime that could give a fillip to the real estate, infrastructure and financial services sectors; the streamlining of regimes of REITs and INVITs, which will lead to monetisation of income-generating assets and unlocking of capital for infrastructure development; the abolition of the Foreign Investment Promotion Board thereby reducing delays and promoting ease of doing business in India; and the rollout of the goods and services tax (GST) that is expected to boost GDP growth by 2–2.5 per cent.21 A few key developments have been summarised below.

i Abolition of the Foreign Investment Promotion Board

The Foreign Investment Promotion Board (FIPB) was an inter-ministerial body that approved applications under the FDI policy for foreign investment in restricted sectors or structures. In the recent past, FIPB processing was plagued with delays, which caused concern among the foreign investor community. In May 2017, the FIPB was abolished and concerned ministries were given charge to grant approvals for the 11 sectors22 that are subject to FDI limitations, and thereafter operating procedures were introduced stipulating the role of the Department of Industrial Policy and Promotion (DIPP) and of the relevant ministries, including the Home Ministry.

By way of example, applications involving investments from ‘countries of concern’ under the automatic route that require security clearance according to the FDI policy will be processed by the Home Ministry, whereas those under the government approval route will be processed by the relevant ministry. Applications for FDI into investment companies (company engaged only in the activity of investing in the capital of other Indian companies or group companies) will be processed by the Department of Economic Affairs irrespective of the sector in which the investment is being made.

Further, the concurrence of the DIPP is mandatory if an application is proposed to be rejected by the concerned ministry or where approval is to be subject to additional conditions.

ii Other financial services

According to the India Brand Equity Foundation report on the financial services sector, the Indian financial sector broadly comprises commercial banks, capital market participants (such as mutual funds and others), insurance companies and non-banking financial companies (NBFCs), within which commercial banks constitute more than 64 per cent of the total assets in the Indian financial system.23 It is thus not surprising that of the top 12 companies by market capitalisation on the Bombay Stock Exchange, four are commercial banks (three out of these four are private banks).24 Further, according to the RBI’s June 2017 Financial Stability Report, as of March 2017 there were 11,517 NBFCs registered with the RBI.

The government amended the FDI policy25 to permit 100 per cent FDI in companies engaged in financial services that are regulated by the financial services regulators (i.e., the RBI, SEBI, IRDA, National Housing Board, Pension Fund Regulatory and Development Authority (PFRDA) or any other financial regulator as notified by the government). Thus, foreign investors can set up NBFCs to conduct financial services business (such as lending, investments and asset management). Each financial services regulator stipulates the minimum net worth or net owned funds or capitalisation limits under its respective regulations.

In August 2016, the RBI notified a list of NBFCs26 that have been conferred with enforcement powers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, which is a faster enforcement mechanism as opposed to proceeding under the civil court system. These powers equip NBFCs with enhanced enforcement powers against defaulting borrowers.

iii Asset reconstruction companies

100 per cent FDI has been permitted under the automatic route27 in asset reconstruction companies (ARCs) since October 2016. There are nearly a dozen applications filed with the RBI to seek registration as an ARC. In order to ensure ‘skin in the game’, in April 2017 the RBI increased the net owned fund requirement for ARCs from 20 million rupees to 1 billion rupees. An ARC structure is crucial for strategic investors and turnaround funds, and investors looking at garnering stressed and distressed businesses by buying non-performing assets (NPAs) from banks and taking control of the borrower company through a resolution mechanism under the aegis of the IBC with the objective of earning profit by effectuating a turnaround. The total size of the Indian banking sector’s NPAs is estimated to be over 6.7 trillion rupees, of which no less than 6 trillion rupees is accounted for by state-owned banks or public sector banks.28

As part of its commitment to facilitate expeditious resolution of stressed assets, the government issued the Banking Regulation (Amendment) Ordinance 2017, amending the Banking Regulation Act 1949 and empowering the RBI to direct banks to resolve specific stressed assets by initiating an insolvency resolution process. Under this new provision, 12 borrower accounts29 were referred by the RBI to the insolvency resolution process under the IBC. One of these borrower companies filed a writ before the Gujarat High Court challenging the RBI’s action, but the Court upheld the provisions of the above ordinance and the RBI’s decision. The actions of the government and the RBI, combined with the courts upholding the RBI’s decisions and steadfastly implementing the insolvency resolution process, have paved the way for effective resolution of stressed assets in India.

v International financial services centre

An international financial services centre (IFSC) constitutes an identified city where financial institutions can render financial services to residents and non-residents in foreign currencies. Section 18(2) of the Special Economic Zones Act 2005 empowers the government of India to set up IFSCs subject to operational guidelines to be issued by the financial services regulators. The Gujarat International Finance Tec-City (GIFT City) is presently the only IFSC set up in India. Regulatory and tax regimes have been amended to facilitate conduct of financial services activities (including setting up of funds and fund managers entities) in GIFT City.

Companies operating in GIFT City have been conferred with a host of tax incentives, including tax holiday (100 per cent exemption from corporate income tax for the first five years and 50 per cent for the subsequent five years) and no dividend distribution tax for profits repatriated outside GIFT City.


i Insurance

Insurance companies are permitted to invest in Category I and Category II AIFs, capped at the lower of: (1) overall exposure to AIFs of 3 and 5 per cent (for life insurance and general insurance respectively); or (2) 10 per cent of the AIF corpus (20 per cent for an infrastructure AIF).30 However, for Category II AIFs, investment is only permitted if at least 51 per cent of such AIF’s corpus is invested in infrastructure facilities, SME entities, venture capital undertakings or social venture entities.

ii Pensions31

FDI in pension funds has been increased to 49 per cent under the automatic route, provided that the foreign investor: (1) complies with the PFRDA Act 2013; and (2) procures all necessary permissions set out in the PFRDA Act 2013. The control of the pension fund must also remain with Indian residents.

Pension funds are permitted to invest in Category I and Category II AIFs, subject to a ceiling of 2 per cent of the corpus of the pension fund.32 For Category II AIFs, investment is only permitted if at least 51 per cent if the AIF’s corpus has been invested in infrastructure facilities, SME entities, venture capital undertakings or social venture entities.

iii Real property

Investments in Indian funds proposing to invest in real estate or infrastructure assets are regulated through the AIF Regulations, REITs Regulations, INVITs Regulations, MF Regulations (as a real estate mutual fund scheme) or the SEBI (Collective Investment Scheme) Regulations 1999, as may be applicable.

iv Hedge funds

Indian hedge funds are regulated under the AIF Regulations as Category III AIFs. Hedge funds may be either open-ended or closed-ended, and there is no minimum tenure prescribed. Further, SEBI recently amended the AIF Regulations33 to permit Category III AIFs to participate in the commodity derivatives market with certain conditions.

Offshore hedge funds can seek registration under the FPI Regulations if they intend to invest in Indian listed securities (including derivatives).

v Private equity

India private equity funds can seek registration as Category II AIFs under the AIF Regulations. Long-only funds will need to seek registration as Category III AIFs under the AIF Regulations because of restrictions in relation to the maximum permissible limit for investments in listed securities under Category II.

vi Other sectors
Banking and financial services

See Section V, supra, for recent developments impacting banks, the financial services sector and investments in stressed or distressed assets.

Angel funds and start-ups

In January 2016, the Indian government announced the ‘Startup India, Standup India’ initiative, designed to encourage entrepreneurship and innovation. A start-up is defined as a company that:

  • a was set up in the past seven years (for biotechnology start-ups this period is 10 years);
  • b has an annual turnover that does not exceed 250 million rupees in any preceding financial year; and
  • c works towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with high potential for employment generation or wealth creation.

The process of recognising start-ups is conducted through an online portal of the DIPP, and the Ministry of Commerce and Industry. Start-ups are entitled to a special tax regime comprising a reduced corporate tax rate, tax holiday and a period for carrying losses forward. The government has also set up a panel of facilitators for patent and design applications as well as trademark applications to assist start-ups.

According to Inc42’s Indian Tech Startup Funding Report for January to June 2017, over US$5.56 billion was invested across 452 Indian tech start-ups in this period (excluding 71 mergers and acquisitions that took place during the same period).

With a view to encouraging investments by angel funds34 and facilitate investments in start-ups, SEBI made the following amendments to the AIF Regulations:35

  • a the upper limit for number of angel investors in an angel fund has been increased from 49 to 200;
  • b the minimum investment threshold for angel funds in a start-up has been reduced from 5 million rupees to 2.5 million rupees;
  • c angel funds will now be subject to a lock-in period of one year (formerly three years); and
  • d an angel fund could also invest in the securities of companies incorporated outside India, subject to conditions to be prescribed.


The key legislation governing the taxation of income in India is contained in the Income Tax Act 1961 (the IT Act). Category I and II AIFs are treated as pass-through entities under the IT Act and are thus not taxed at the entity level except in case of business income earned by the AIF.

Category I and Category II AIFs are required to withhold tax at a rate of 10 per cent when distributing or crediting income to their investors. In case of an offshore investors investing from a tax-treaty country, Category I and Category II AIFs are required to apply a reduced withholding tax rate as may be specified in the tax treaty. However, any income that is otherwise not chargeable to tax will not be subject to the aforesaid withholding tax.

Category III AIFs do not enjoy the tax pass-through status and would need to be structured as trusts for this to be the case under the general trust taxation provisions of the IT Act.

In case of offshore funds or offshore investors investing in Indian portfolio companies, to the extent that the non-resident is located in a tax-treaty jurisdiction, the provisions under the tax treaty or the IT Act, whichever are more beneficial, would apply. Additionally, under the IT Act, FPIs enjoy a concessional tax regime for both interest income and capital gains.

There have been a few recent amendments that impact tax structuring, which are summarised below.

i Amendments to tax treaties

India has amended its tax treaties with Singapore and Mauritius and moved to source-based taxation of capital gains arising from alienation of shares acquired on or after 1 April 2017. However, capital gains arising during the transition period from 1 April 2017 to 31 March 2019 will be subject to taxation at a rate that is equal to 50 per cent of the Indian tax rate. Additionally, a limitation of benefits article has been introduced in the Mauritius tax treaty that, inter alia, stipulates a minimum expenditure threshold of 1.5 million Mauritian rupees and provides a reduced withholding tax rate on interest at 7.5 per cent.

With the capital gains exemption being removed on sale of shares, FPIs are exploring other treaty jurisdictions such as South Korea, Spain, France and the Netherlands to make investments into Indian equities. However, the domestic General Anti-Avoidance Rule (GAAR) came into effect on 1 April 2017, which means that these structures will need to pass the commercial substance test and withstand tax scrutiny.

ii Multilateral instrument

India signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument (MLI)) on 7 June 2017. According to the press release by the Central Board of Direct Taxes,36 the MLI will not function in the same way as an amending protocol to an existing treaty. Instead, it will be applied alongside existing tax treaties, modifying their application in order to implement the measures to prevent base erosion and profit shifting (BEPS). India has notified all its tax treaties for application of the measures to prevent BEPS. However, the provisions of the MLI for implementing these measures will become binding only when accepted by the treaty partner.

iii GAAR

The much anticipated GAAR, which was introduced through the Finance Act 2012, came into effect on 1 April 2017. It will not apply to income earned or received by any person from the transfer of investments made before 1 April 2017 and it will apply to any arrangement, irrespective of the date it has been entered into, if a tax benefit was obtained on or after 1 April 2017.

The GAAR may be invoked by the income tax authorities in case arrangements are found to be ‘impermissible avoidance arrangements’. A transaction could be declared to be an impermissible avoidance arrangement if its main purpose is to obtain a tax benefit and if it satisfies one of the following four tests:

  • a it creates rights or obligations that are ordinarily not created between parties dealing at arm’s length;
  • b it results in direct or indirect misuse or abuse of the IT Act;
  • c it lacks commercial substance or is deemed to lack commercial substance in whole or in part; or
  • d it is entered into or carried out in a manner that is not normally employed for bona fide business purposes.

In such cases, the tax authorities are empowered to reallocate the income from such arrangement, or ‘re-characterise’ or disregard the arrangement.

iv Place of effective management

The final guidelines for determining the place of effective management (POEM) of a company were released in January 2017. Under the IT Act, an foreign company that has a POEM in India will be regarded as a tax resident of India, thereby giving India the right to tax its worldwide income. The IT Act defines a POEM as ‘a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made’.


The GST was introduced through the Constitution (101st Amendment) Act 2016 and came into effect on 1 July 2017. It has subsumed multiple indirect taxes, and aims at removing the cascading effect of taxes. Under this regime, tax will be collected at the place of supply. The GST regime regulates inter-state supply of goods and services through the Integrated Goods and Services Act 2017, while the intra-state supply of goods and services is regulated through the Central Goods and Services Act 2017.

From the perspective of the funds industry, two relevant provisions are:

  • a management fees, trusteeship fees and performance fees charged to Indian funds will be subject to GST at 18 per cent; and
  • b advisory fees charged to offshore funds and investors will qualify as ‘zero-rated’ supply of services and thus be exempt from GST.


India is in a state of metamorphosis and the recent new laws and regulations, as well as amendments to existing legal, tax and regulatory regimes, will have a significant impact on India’s future as they will not only usher in an economic transformation, but will also lead to a change in mindset of doing business in India and with India.

1 Cyril Shroff is a managing partner and Shagoofa Rashid Khan is a partner at Cyril Amarchand Mangaldas.

2 Association of Mutual Funds of India (AMFI) Monthly, June 2017.

3 Number of registered intermediaries available at: www.sebi.gov.in/sebiweb/other/OtherAction.do?do

4 The Securities and Exchange Board of India (SEBI) Handbook of Statistics 2016 dated 22 May 2017.

5 SEBI Monthly Bulletin, May 2017.

6 See footnote 2.

7 Ibid.

8 Ibid.

9 Ibid.

10 Fact Sheet on Foreign Direct Investment available at http://dipp.nic.in/sites/default/files/FDI_FactSheet_January_March2017.pdf.

11 SEBI Notification No. SEBI/LAD/NRO/GN/2016-17/022 dated 30 November 2016.

12 SEBI Notification No. SEBI/LAD/NRO/GN/2016-17/021 dated 30 November 2016.

13 SEBI Notification No. SEBI/LAD/NRO/GN/2016-17/031 dated 15 February 2017; Circular Ref: IRDAI/CIR/F&I/INV/056/03/2016-17; and Circular No. RBI/2016-17/280DBR.No.FSD. BC.62/24.01.040/2016-17.

14 As of 30 April 2017, out of the 315 AIFs registered with SEBI, only seven were formed as LLPs and two as companies, with the remaining being registered as trusts.

15 Association of Mutual Funds of India (AMFI) Monthly, June 2017.

16 www.ibef.org/industry/financial-services-india.aspx.

17 www.sebi.gov.in/statistics/1392982252002.html.

18 http://dipp.nic.in/sites/default/files/FDI_FactSheet_January_March2017.pdf.

19 www.bain.com/publications/articles/india-private-equity-report-2017.aspx.

20 www.fpi.nsdl.co.in/web/Reports/Yearwise.aspx?RptType=6.

21 www.businesstoday.in/moneytoday/expert-view/a-welldesigned-gst-can-boost-gdp-growth-by-2per cent/ story/8474.html.

22 These include defence, broadcasting, retail, print media, civil aviation and mining.

23 www.ibef.org/download/Financial-Services-June-2017.pdf.

24 www.bseindia.com/markets/equity/EQReports/TopMarketCapitalization.aspx.

25 Notification No. FEMA.375/2016-RB dated 9 September 2016.

26 NBFCs having net owned funds of 5 billion rupees.

27 Notification No. FEMA.372/2016-RB dated 27 October 2016.

28 The Business Standard, 9 May 2017 (http://smartinvestor.business-standard.com/market/story-456576-storydet-NPA_framework_Ordinance_to_empower_RBI_actually_gives_more_teeth_to_govt.htm#.WbEBFO9PrVI).

29 The 12 accounts are: Essar Steel, Bhushan Steel, Bhushan Power, Alok Industries, Electrosteel Steels, JP Infra, Lanco Infratech, Monnet Ispat, Jyoti Structures, ABG Shipyard, Amtek Auto and Era Infra. Bhushan Steel with a gross debt of over 440 billion rupees is the single largest borrower-defaulter. These 12 cases amount to 25 per cent of the current gross NPAs of the Indian banking system.

30 IRDA Circular IRDA/F&I/CIR/INV/172/08/2013.

31 Notification No. FEMA.379/ 2016-RB dated 4 November 2016.

32 PFRDA Circular PFRDA/2016/8/PFM/02.

33 Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2017/61.

34 An angel fund is a subcategory under Category I of the AIF Regulations.

35 SEBI Notification No. SEBI/LAD-NRO/GN/2016-17/026, dated 3 January 2017.

36 The apex body for tax administration under the Income Tax Act.