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

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.

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.