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Govt proposes special tax incentives for FPIs choosing Gift City over Singapore & Mauritius

Govt proposes special tax incentives for FPIs choosing Gift City over Singapore & Mauritius

Changes to the tax regulations introduced by the government on Friday will provide special incentive for foreign funds who choose to shift their base from Singapore or Mauritius to International Financial Services Centre (IFSC), Gift City, Gandhinagar.

As a part of the Taxation and Other Laws Bill tabled in the Parliament, the Government has proposed to introduce a new regime for taxation of off-shore funds choosing Gift City. As per the proposed changes, profits and business income earned by such funds from Gift City will be tax exempt. Tax experts say, the changes are comparable to taxation of foreign funds domiciled in Fund jurisdictions such as Singapore and Ireland.

Currently, funds coming from Singapore and Mauritius don’t pay any taxes on derivative trades. However, in the recent past the tax department has gone after some of such FPIs – especially those based out of Mauritius – from tax avoidance point of view. This has prompted several foreign funds to look at creating a domestic structure so that they comply with tax avoidance laws like General Anti-Avoidance Rules (GAAR). However, to do that they will have to forgo the tax exemption on derivatives that they enjoy under Mauritius and Singapore tax agreements.

Going forward, such funds can set up an Alternative Investment Fund (AIF) in Gift City and invest in contracts traded on NSE and BSE without having to forgo the tax incentive. At the same time, these funds needn’t worry about the tax avoidance angle if they are based out of Gift City, since there will be no need to apply for tax treaty exemptions.

 

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