Govt Grants Tax Exemption in GIFT City for ETFs and Investment Trusts

The government has announced a significant development for Gujarat International Finance Tech (GIFT) City in Gujarat.

Investment trust and ETF (exchange traded fund) units issued by companies in GIFT City are now exempt from capital gains tax.

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GIFT City, established as an International Financial Service Center, is actively promoted as a tax-neutral hub for the financial sector.

CBDT Issues Notification

The Central Board of Direct Taxes (CBDT) has issued a notification outlining these changes.

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This notification specifies that units of investment trusts and ETFs initiated under the International Financial Services Center Authority (Fund Manager) Regulations 2022 will no longer be subject to capital gains tax.

Capital Gains Tax Exemption for GIFT City ETFs

ETFs listed and traded on the exchange located within GIFT City will now qualify for capital gains tax exemption.

These amendments broaden the range of incentives available for fund and stock market trading within the International Financial Services Center (IFSC).

Expert Opinions

According to Sunil Gidwani, Partner (Financial Services) at Nangia Anderson LLP, the existing laws have already exempted various securities from capital gains tax, particularly those traded in stock exchanges within GIFT City or issued by units based in the same region.

Gidwani noted that the new fund regime includes provisions for establishing funds as investment trusts, necessitating the inclusion of units issued by these trusts for capital gains tax exemption.

Amit Maheshwari, Partner at AKM Global Tax, praised this move, asserting that it aligns with the objective of establishing IFSC as a global financial services hub and attracting non-resident investors to recognized stock exchanges.

Maheshwari believes that this tax-neutral environment will attract more investors, leading to increased investments in the region and strengthening IFSC’s position in the world of financial services.

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