However, the present taxation structure has an in-built incentive for fund managers to operate from offshore locations.
"I propose to modify the Permanent Establishment (PE) norms to the effect that mere presence of a fund manager in India would not constitute PE of the offshore funds resulting in adverse tax consequences," Finance Minister Arun Jaitley said, while presenting the Budget for 2015-16 in the Lok Sabha.
"Budget encourages fund managers investing in India to shift base to that country," Reliance Mutual Fund CEO Sundeep Sikka said.
Echoing a similar view Bijal Ajinkya, Partner at Khaitan & Co, said: "This proposal would be a big boost to the fund industry, and we would expect a large quantum of such managers to relocate to India.
Under the new norms, the presence of the fund manager of an offshore fund in India does not create the presence of a business connection in the country. Neither would their presence be construed as making the offshore fund an Indian tax resident, Ajinkya said.