Tax waiver for ETF capital gains on GIFT exchange

Tax waiver for ETF capital gains on GIFT exchange

To further the objective of making the GIFT International Financial Services Centre (IFSC) in Gujarat a hub for financial services in the world, the Centre has exempted tax on capital gains arising from the transfer of units of investment trusts and exchange-traded funds (ETFs) on exchanges in the IFSC.

The Central Board of Direct Taxes (CBDT) notified the exemption under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

The Income Tax Act already provides for 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. Currently, specified securities such as foreign currency-denominated bonds, units of a mutual fund, units of a business trusts, foreign currency-denominated equity shares of a company and unit of AIF enjoy capital gains tax exemption in the IFSC.

“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,” Maheshwari said.

It is worth noting that to qualify for this exemption, the payment for such transactions must be in a foreign currency.Separately, the International Financial Services Centres Authority (IFSCA), the regulator for IFSCs, is looking to operationalise the framework for direct listing of companies on IFSC exchanges by end-2023.

Overseas listing treatment to firms listing in GIFT IFSC would help the Indian firms take advantage of lenient tax rules for the offshore facility. The IFSC is being groomed by the government to make it an international financial hub on the lines of London that could act as a catalyst in attracting foreign investors to Indian corporates which are gaining global prominence and need a large pool of capital from the worldwide.