ETFs in GIFT City to be exempted from capital gains tax

The government has announced tax exemption for Investment Trusts and Exchange Traded Funds (ETFs) operating in the GIFT City. The tax relaxation is expected to enhance the global competitiveness of GIFT International Financial Services Centre (IFSC) for non-resident investors.

The Central government has taken a significant initiative to promote Gujarat International Finance Tec-City (GIFT)-IFSC, as a hub for financial services in the world. The government has announced tax exemption for Investment Trusts and Exchange Traded Funds (ETFs) operating in the GIFT City. 

According to the new regulation, any unit of an investment trust, a unit of a scheme, or a unit of an ETF launched in accordance with the International Financial Services Centres Authority (Fund Management) Regulations of 2022 will be exempt from capital gains tax.  

This move is expected to enhance the global competitiveness of IFSC for non-resident investors.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm said, “This (new additions to the list of capital gains exemption) aligns with the goal of establishing the IFSC as a global financial services hub and encouraging non-resident investors to participate in recognized stock exchanges within the IFSC.”

It is to be noted that, to qualify for this exemption, the payment for such transactions must be in a foreign currency.

The Income Tax Act already offers exemption from capital gains tax on various securities either trading on the stock exchanges in GIFT City or securities issued by entities set up in GIFT City. 

Presently, specified securities such as foreign currency-denominated bonds, units of a mutual fund, units of business trusts, foreign currency-denominated equity shares of a company and units of AIF are entitled to capital gains tax exemption in the IFSC.