Finance Minister (FM) Nirmala Sitharaman made another aggressive pitch to foreign funds investing in India from their bases in tax havens. As a one-time incentive, Sitharaman has offered these offshore funds a ‘complete tax-exemption’ for shifting their assets, lock stock and barrel, to India. These funds can now relocate to the International Financial Services Centre such as the GIFT City in Gujarat and enjoy zero tax on transfer of their assets from other countries.
Experts say this is a major boost for foreign funds as GIFT City has zero tax for 10 years.
“One-time opportunity has been provided for offshore funds to re-domicile to IFSC. Several offshore funds were evaluating this option, but were concerned about the tax impact. FM’s proposal is now a tax-neutral arrangement. It can develop IFSC as India’s fund management hub and will encourage offshore funds to relocate here before March 2023,” said Suresh Swamy, a Chartered Accountant.
Both BSE and NSE offer trading in derivatives of Indian equity and bullion assets that are tax-free. No separate registration is required to trade in GIFT for those already approved by SEBI.
Funds worth billions of dollars, with underlying Indian assets, are currently based in Mauritius, Singapore, Dubai, Cayman Islands etc. They are located in these said locations for lax tax laws and lower rates prevailing there. GIFT City offers them much more.
REIT/InVIT get exemption
The FM has also given tax-exemption to foreign funds in real-estate investment trusts (REITs) and infrastructure investment trusts (InVITs) in IFSCs. Further, non-availability of credit of DDT to foreign investors in their home country resulted in less earnings. The FM has now removed dividend distribution tax and adopted the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend will be taxed only in the hands of the recipients at their applicable rate.
“All tax incentives will put GIFT on par with financial hubs such as London, New York, Singapore, Hong Kong and Dubai,” said V. Balasubramanian, MD and CEO, BSE’s GIFT bourse, India International Exchange.