Reinventing India's financial terrain: The impact of GIFT City on the investment landscape
In the bustling world of Indian finance, a unique blend of benefits is attracting fund managers to Gujarat International Finance Tec-City (GIFT City). Known as GIFT AIFs, these Alternative Investment Funds (AIFs) offer a compelling alternative to traditional offshore structures, providing a combination of onshore and offshore advantages with specific tax benefits and regulatory clarity.
Structured as AIFs within GIFT City, a Special Economic Zone (SEZ) governed by the International Financial Services Centres Authority (IFSCA), GIFT AIFs leverage the best of both worlds. Unlike traditional offshore funds, which are typically set up outside India to avoid regulatory oversight and benefit from lower tax regimes, GIFT AIFs are recognized as regulated entities under Indian law. This offers a structured environment for fund management with specific tax and regulatory benefits.
Taxation is another area where GIFT AIFs shine. Like domestic AIFs, GIFT AIFs enjoy pass-through status under Indian tax laws, meaning investors are taxed on income such as interest, dividends, and capital gains. Additionally, GIFT fund managers are exempt from Goods and Services Tax (GST) on management fees and carried interest. They also benefit from a tax exemption on their income for any 10 consecutive years within a 15-year window. In contrast, traditional offshore structures may not offer the same level of tax benefits or regulatory recognition.
The regulatory framework is another key difference. Governed by IFSCA regulations, which are designed to align with global best practices, GIFT AIFs operate within a structured environment. This offers a clear advantage over traditional offshore structures, which often operate outside Indian regulatory oversight, potentially lacking the regulatory clarity and advantages of being part of a recognized financial hub like GIFT City.
Investment opportunities are another area where GIFT AIFs excel. Offering global investment opportunities with specific tax benefits, they are attractive for both domestic and international investors. They provide a unique platform for tax-efficient investment strategies. While traditional offshore structures offer global investment opportunities, they often require additional layers of complexity and may not provide the same level of integration with Indian financial markets as GIFT AIFs.
In summary, GIFT AIFs combine the benefits of onshore and offshore structures with specific tax advantages and regulatory clarity, making them an attractive option for Indian fund managers who seek to operate within a structured and recognized financial framework. For new fund managers, particularly those focused on attracting foreign capital, GIFT City presents a compelling and practical alternative to traditional offshore jurisdictions. The government's introduction of GIFT City in April 2015, regarded as a jurisdiction outside India for regulatory purposes and governed by IFSCA, aims to address these concerns and enhance India's global competitiveness. As of March 2024, nearly 104 GIFT AIFs had been registered with the IFSCA, reflecting the growing popularity of this innovative financial structure.
Business managers are increasingly exploring GIFT City as a favorable destination for investing in finance due to the unique advantages offered by GIFT AIFs. Being recognized as regulated entities under Indian law, GIFT AIFs provide a structured environment for fund management with specific tax and regulatory benefits.
In contrast to traditional offshore structures, which may not offer the same level of tax benefits or regulatory recognition, GIFT AIFs offer tax-efficient investment strategies that attract both domestic and international investors. This makes them an appealing choice for fund managers looking to capitalize on global investment opportunities in a recognized and structured financial hub like GIFT City.
