FPIs shift to GIFT City, boost market moves

Mumbai: Many foreign portfolio investors (FPIs) are shutting operations in tax havens like Mauritius, Singapore and Dubai to set up shop in Gujarat's GIFT City.

Over the past few months, many FPIs have started operating from the GIFT City and the recent spurt in foreign fund inflows into the Indian market are said to be largely from these foreign players.

Gujarat International Finance Tec-City, or GIFT City, developed as an international financial center (IFC), has seen hundreds of companies getting registrations recently and many of them are said to be FPIs operating as single director-owned enterprises or LLP.

Sources said these newly moved FPIs are making large investments into Indian markets over the past few months.

Since January this year, foreign funds have been aggressively buying in the domestic equity market, with Rs 30,877 crore invested so far in 2019 as against a net outflow of Rs 33,014 crore in 2018, NSDL data shows.

According to experts, it has become attractive for FPIs to shift to the IFC in Gujarat as it offers incentives like segregated nominee account structures and other benefits like exemption from Long-Term and Short-Term Capital Gains and even charges such as Securities Transaction Tax.

Recently the Central Board of Direct Taxes (CBDT) has allowed offshore fund managers to relocate to India for managing their offshore funds without any tax hurdle. Many say this has given a major boost to the Gift City.

In the budget 2015-16, the government announced that it would take measures to allow on-shoring of fund management through an enabling tax regime.

According to sources, several fund managers have received pre-approvals from the CBDT under Section 9A of the Income Tax Act.

The Section 9A, which was introduced in April 1, 2016, provides that only a fund manager's income or management fee will be subjected to tax and not the entire global income of the global fund.

Experts said the move was intended to woo fund managers operating in offshore jurisdictions such as Singapore to India and enable them to start managing funds from India.