All you need to know about the NRI taxation in GIFT City

Gujarat International Finance Tech City (GIFT City) enables tax efficient investment opportunity to NRIs and foreign nationals. 

Addressing the session on ‘Managing the NRI taxation maze’ at the ‘Cafemutual India Investment Summit’ in Dubai, Neha Bagri, Associate Partner, PwC said that the GIFT IFSC enables various taxation benefits for NRIs investing through AIF/PMS route, foreign portfolio investment (FPI) route and GIFT funds route.

Here are some of the provisions, tax benefits and tax liabilities for NRI investors investing through GIFT IFSC.

For investments via PMS route

• The capital gains calculations for the investment through PMS are done in the name of the individual investor and the investor needs to have a permanent Account Number (PAN)
• In the budget last year, the government increased the tax rates under PMS.  Short term tax rates were revised to 20% from 15% taking the effective rates to 24% (including cess) while the tax on long term capital gains has been increased to 12.5% from the earlier rates of 10% taking the effective tax rates to 15%
• The dividend allotted in the PMS schemes is taxed at 20% while the surcharge takes the effective rates to 24%
• Further, the investors belonging to treaty jurisdiction areas also get the benefits of double taxation avoidance in the form of tax rebates

Provisions for AIF investors

• The services provided to the off-shore individuals and entities are not under the GST purview and are exempted from the GST applicability
• All the taxation for the funds is done on the fund level, which means that the investors have no need to plan their taxation for such investments
• Dividend in this investment comes under the GST purview and the management fee and the carry portion is taxed at a rate of 18%
• The investors investing in India through this route need to file tax returns in India

Provisions for investment through FPI route

• The NRI investment through FPI route cannot be more than 50% of the scheme size while the single individual investment limit is capped at 25%
• The capital gains under this route of investment are taxed at an effective rate of 15% while the dividend is taxed at a rate of 7.5%
• The FPI investors do not need to have a PAN in India and the income is exempted from GST jurisdiction

Provisions for mutual funds in GIFT IFSC

• For the off-shore funds in the GIFT City, the IFSCA enables a concessional tax regime making it an investment at par with the investments made from outside India
• 100% NRI participation in the funds is also allowed for the off-shore funds operating through GIFT IFSC
• The derivative income for the investments under this route is tax free and there are no complications around treaty regulations
• The provisions for the tax concessions are prescribed under the Act in itself doing away the dependency on tax treaties with various jurisdiction authorities
• The fund managers managing the funds in the GIFT IFSC need to have a substance or an operational unit inside the IFSC
• The minimum ticket size for the investment through this route is USD 150,000 while there is no minimum ticket size for the retail schemes
• The derivative income is tax free for the investments through fund route in the GIFT IFSC
• The fund route investment in the GIFT IFSC attracts no restriction on derivative investments 

You can watch the complete video by clicking here.