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IFSC at GIFT City & Benefits for Non-Resident Indian (NRI) Investors

  • Published
    16th Feb, 2022
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. 

What is International Financial Services Centre?

  • An international financial services centre caters to customers outside the jurisdiction of domestic economy, dealing with flows of finance, financial products and services across borders.
  • Gujarat International Finance Tec-City Co. Ltd is being developed as the country’s first international financial services centre (IFSC)

What are the services an IFSC can provide?

  • Fund-raising services for individuals, corporations and governments
  • Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds
  • Wealth management
  • Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
  • Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
  • Risk management operations such as insurance and reinsurance
  • Merger and acquisition activities among trans-national corporations
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