AFPTo facilitate the onshoring of offshore funds into India, the finance minister on Monday announced new tax incentives for units under the International Financial Services Centre (IFSC). This will allow international funds to relocate to India and avail tax exemption, experts said.
The government of India and the IFSC Authority have been progressively aligning the Gift City architecture to global IFSCs, and this move is another step in that direction, said Shagoofa Rashid Khan, partner at Cyril Amarchand Mangaldas. She added that this will enable the relocation of existing feeder vehicles to Gift City, thereby extending the tax benefits to fund managers. The move will make Gift City an attractive proposition for existing offshore funds being advised by Indian advisors, Khan said.
“A noteworthy measure has been to introduce a ‘warehousing’ mechanism for offshore funds that currently invest into India - a system that allows them to move their fund to GIFT IFSC without the transfer being subject to tax,” said Siddharth Pai, founding partner and CFO at 3one4 Capital, and co-chair at Regulatory Affairs Committee, IVCA.
According to Pai, this will give a huge boost to the Indian fund ecosystem as part of the ‘Onshore the Offshore’ program that has been in vogue for the past few years. “This will help ensure that the gateway to Indian equities will be in India and the need to have a foreign launchpad to invest in Indian equities is mitigated,” he said.
The move will also help bring the management fee into India. “As the feeder will now be in IFSC, all management fee value will get captured in India and hence India will command a higher-margin management fee as opposed to an advisory fee,” Khan of Cyril Amarchand Mangaldas added.
“Most VC players who operate either out of Singapore or Mauritius will find this particularly attractive from a deal-making perspective," said Ritesh Kumar, partner at Indus Law. "The quality of this exemption will help reduce the complexity of deals substantially,” he added.
The government of India and the IFSC Authority have been progressively aligning the Gift City architecture to global IFSCs, and this move is another step in that direction, said Shagoofa Rashid Khan, partner at Cyril Amarchand Mangaldas. She added that this will enable the relocation of existing feeder vehicles to Gift City, thereby extending the tax benefits to fund managers. The move will make Gift City an attractive proposition for existing offshore funds being advised by Indian advisors, Khan said.
Earlier, under the GIFT City IFSC initiative, the government had announced tax sops for new alternative investment funds (AIFs) to be set up there. However, the Budget 2021-22 announcement will help scale up IFSC immediately.
“A noteworthy measure has been to introduce a ‘warehousing’ mechanism for offshore funds that currently invest into India - a system that allows them to move their fund to GIFT IFSC without the transfer being subject to tax,” said Siddharth Pai, founding partner and CFO at 3one4 Capital, and co-chair at Regulatory Affairs Committee, IVCA.
According to Pai, this will give a huge boost to the Indian fund ecosystem as part of the ‘Onshore the Offshore’ program that has been in vogue for the past few years. “This will help ensure that the gateway to Indian equities will be in India and the need to have a foreign launchpad to invest in Indian equities is mitigated,” he said.
The move will also help bring the management fee into India. “As the feeder will now be in IFSC, all management fee value will get captured in India and hence India will command a higher-margin management fee as opposed to an advisory fee,” Khan of Cyril Amarchand Mangaldas added.
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“Most VC players who operate either out of Singapore or Mauritius will find this particularly attractive from a deal-making perspective," said Ritesh Kumar, partner at Indus Law. "The quality of this exemption will help reduce the complexity of deals substantially,” he added.
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