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Centre exempts ETFs from capital gains tax at GIFT

In a significant development benefiting investors engaged in stock exchanges and securities within the GIFT IFSC in Gandhinagar, the Central Board of Direct Taxes (CBDT) issued a notification on Tuesday, granting these units exemptions from capital gains tax. This decision brings considerable relief to investors, as it means that any unit associated with an investment trust, scheme, or exchange-traded fund (ETF) launched under the International Financial Services Authority (IFSC) Fund Management Regulations is now exempt from capital gains tax.

The Gujarat International Finance Tec-City (GIFT)-IFSC is being promoted as a tax-neutral enclave for the financial sector.

According to industry players, this exemption will empower exchanges and funds operating within the GIFT-IFSC to offer more attractive incentives to investors.

Mukesh Patel, an eminent tax expert based in Ahmedabad, commented on this development, stating: “These relaxations will enable funds, investment trusts, and exchange-traded funds (ETFs) in GIFT-IFSC to offer lucrative incentives and investment opportunities to investors. At a time when the government envisions the IFSC as a thriving offshore investment hub, such incentives are likely to pique the interest of both Indian and foreign investors. Similar incentives are offered by IFSCs in Dubai and Singapore, and the CBDT’s decision will enhance GIFT-IFSC’s competitiveness among non-resident investors.”

Nangia Andersen LLP Partner-Financial Services Sunil Gidwani said the law currently 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. “The new fund regime provides for funds to be set up as investment trusts, and hence, the law required the inclusion of units issued by such trusts for the purpose of exemption from capital gains. “Similarly, ETF listed and trading on the stock exchanges in GIFT City will now qualify for capital gains tax exemption,” Gidwani added.

AKM Global Tax Partner Amit Maheshwari said the move is in line to make the IFSC a hub for financial services in the world and incentivize non-resident investors on a recognized stock exchange. “To take advantage of this exemption, the consideration for such a transaction should be paid or payable in foreign currency. The securities, which are added through the new notification, include (i) a unit of investment trust, (ii) a unit of a scheme, and (iii) a unit of an exchange-traded fund.”

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