The Budget has introduced various measures to encourage the transfer of overseas funds from jurisdictions like Mauritius and Singapore to GIFT IFSC.
The deadline for tax neutrality on relocating offshore funds to GIFT City has been extended until March 31, 2030. The benefits of relocation have been expanded to include retail schemes and exchange-traded funds (ETFs). This move is expected to attract a large number of India-centric mutual funds and ETFs to shift to IFSC, thereby promoting the government’s vision of “onshoring the offshore”.
In a move to boost fund management activity in GIFT IFSC, most conditions under section 9A may be eliminated if the fund management entity is established in GIFT IFSC before March 31, 2030. According to Rajesh Gandhi, Partner at Deloitte India, this will incentivize fund managers to relocate their fund management activities from overseas or mainland India.
The safe harbor regime under Section 9A of the Income Tax Act, which exempts fund management activities conducted through an eligible fund manager for eligible investment funds from constituting a business connection in India, will see simplifications. This regime has not been fully utilized due to some overly burdensome conditions.
Additionally, the tax exemption for offshore derivative instruments (ODIs) has been extended to ODIs issued by non-banks or FPIs based in Gift City. Experts believe that this exemption will encourage an increase in OTC derivatives and ODI business from IFSC instead of offshore jurisdictions.
Jaiman Patel, Partner at EY India, stated that the revised Section 9A and the extension of tax exemptions for offshore derivative instruments to non-banks and broker dealers will make GIFT City a more attractive destination for international investment. The inclusion of retail schemes and ETFs in the tax-neutral relocation regime is expected to facilitate the transfer of more funds to GIFT City, thereby enhancing its growth as a competitive and dynamic financial center.
