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IFSC at GIFT City & Benefits for Non-Resident Indian (NRI) Investors
Context
Non-resident Indians (NRIs) and foreign investors enjoy low tax rates on investments made in the International Financial Services Centre (IFSC) in the Gujarat International Finance Tec-City (GIFT) located at Gandhinagar, Gujarat.
A large number of Alternative Investment Funds (AIFs) have also sprung up in the GIFT city, catering to NRIs.
About
Investing in alternative investment funds (AIFs):
- An AIF, which is a privately pooled investment vehicle, comes in three different categories:
- Category I funds invest in start-ups
- The Category II is a residual category which includes private equity funds and debt funds.
- Category III funds such as hedge funds employ diverse trading strategies for investment.
- The regulatory minimum investment amount in an AIF is $1,50,000.
- NRI investors in AIFs in the GIFT City having no other income from India may also take exemption from filing the income tax return.
- These investors are also not required to have a PAN number to invest in AIFs in the IFSC.
Investing in derivatives:
- India’s largest exchanges, BSE and NSE, have set up international exchange and clearing corporations at GIFT IFSC.
- BSE’s exchange at the IFSC is called the India International Exchange (India INX) and NSE’s exchange is NSE IFSC.
- All the transactions will be denominated in the foreign currency only.
- India INX has been a leading exchange in the IFSC, mainly because of the first-mover advantage.
- Since these derivative contracts would be cash settled, there is no requirement of opening a demat account to trade in these derivatives.
- The investor also does not need to have a bank account in the IFSC to transact if they have a dollar account.
- For non-residents, income earned from derivative products in foreign currency is entirely exempt from tax.
IFSC and resident Indians:
- Resident Indians have not been given any tax breaks for investing through the IFSC.
- They can remit money to the IFSC through the Liberalised Remittance Scheme (LRS) of the RBI. However, they can only invest in securities issued by entities outside India.
- Indian residents must also report these holdings in the foreign assets schedule of the income tax return.
- Derivative trading is not permitted under LRS.
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What is International Financial Services Centre?
What are the services an IFSC can provide?
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