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Government exempts investment trusts, ETFs from capital gains tax in GIFT City

The government has announced tax exemption for Investment Trusts and Exchange Traded Funds (ETFs) that operate out of Gujarat International Finance Tec-City (GIFT City), a financial hub promoted as a tax-neutral enclave. The Central Board of Direct Taxes (CBDT) has issued a notification outlining the exemption from capital gains tax for various financial instruments. Under these new regulations, any unit of an investment trust, a unit of a scheme, or a unit of an ETF launched in accordance with the International Financial Services Centres Authority (Fund Management) Regulations of 2022 will be exempt from capital gains tax. This move is aimed at fostering a conducive environment for financial activities within GIFT City.

Investment tax benefits

Sunil Gidwani, Partner in Financial Services, Nangia Andersen LLP, highlighted that the existing law already provided capital gains tax exemption for securities traded on stock exchanges in GIFT City or issued by entities established there. The new regulations extend these benefits to units issued by investment trusts and ETFs, further enhancing the incentives for fund management and stock market trading in the International Financial Services Centre (IFSC).

"Similarly ETF listed and trading on the stock exchanges in GIFT city would now qualify for capital gains tax exemption. These changes would further expand the scope of incentives available for funds and stock market trading in IFSC," Gidwani added.

Amit Maheshwari, Tax Partner, AKM Global, emphasised that this notification aligns with the government's vision of positioning the IFSC as a global financial services hub and attracting non-resident investors to recognized stock exchanges within GIFT City. It's important to note that for investors to benefit from this exemption, the transaction consideration must be paid or payable in foreign currency. The securities covered by the new notification include units of Investment Trusts, Schemes, and Exchange-Traded Funds.

"These relaxations are a welcome move by the government and will make it globally more competitive for the non-resident investors," Maheshwari added.

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