The Capital Market Regulator has issued a Circular on June 01, 2021 to give effect to the provisions of the Finance Act, 2021  for providing tax exemption on transfer of portfolio investments of  foreign funds to International Financial Services Centre (IFSC).

SEBI has been quick enough to come out with the Circular in order to give impetus to shifting of investments in the IFSC. This nod from the regulator will now complete the tax rationalization objective of the Government in making the IFSC in GIFT City a global financial hub and most competitive market when compared to established offshore fund jurisdictions .

In view of the above objective and to further facilitate such ‘relocation’ SEBI has decided that a FPI (‘original fund’) or its wholly owned special purpose vehicle may approach its DDP for approval of a one – time ‘off-market’ transfer of its securities to the ‘resultant fund’. The terms ‘original fund’, ‘relocation’ and ‘resultant fund’ will have the same meaning as assigned to them under the Finance Act,2021.

The DDP after appropriate due diligence may accord its approval for a one-time ‘off-market’ transfer of securities for such relocation.

SEBI has also clarified that relocation request will imply that the FPI has deemed to have applied for surrender of its existing registration and the DDP have to adhere to guidelines pertaining to surrender of FPI registration.

The ‘off-market’ transfer shall be allowed without prejudice to any provisions of tax laws and FEMA.

This Circular has confirmed the tax incentives granted in the Budget 2021 for offshore funds seeking to relocate to India IFSC. The tax neutral transfer of portfolio by the FPI or its wholly owned special purpose vehicle is one more step by the Indian Government to lure foreign investors to shift to Indian Capital Market.

With further rationalization, ease of compliance norms, extension of compliance due dates amidst pandemic, granting tax incentives and opening the gateways for aircraft leasing entities as well in the IFSC, the Indian capital market will not only become competitive and self reliant but also boost the spirit of foreign investors in the IFSC.

SEBI shall also explicitly clarify the tax neutral position for off-market transfer of portfolio in respect of existing FPIs registered in India as well.

With the measures taken to promote the IFSC Gift City as one of the most attractive destination for Foreign Investments and make it a global fin-tech hub, the Government has once again shown its intent to make India self reliant (Atma Nirbhar).

Author: CA. Ritesh Podar, Mumbai, Maharashtra.  He can be reached at [email protected] or 9833014637.

(The views expressed are personal.)

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One Comment

  1. siddhant jangam says:

    Sir, How FPI relocating to IFSC will help India. Is it only being done from the point of view of ease of doing business, less stringent regulations for FPI and taxation?

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June 2021