GIFT City funds want tax at source removed to bring home HNI money going to Dubai, Singapore
The GIFT City regulator has channeled a demand from fund companies to the Union finance ministry that investments from Indian investors be exempt from tax collected at source (TCS). Fund managers argue that removing TCS would simplify compliance and attract more investments to GIFT City.
The regulator of GIFT City, short for Gujarat International Finance Tec City, has relayed a key demand from fund companies operating there to the Union finance ministry that tax collected at source, or TCS, be exempted on investments made by Indians in the international financial services centre (IFSC).
GIFT City, India’s first IFSC, is considered an offshore jurisdiction and whenever an Indian investor sends money to a fund registered there, the transfer attracts TCS like any other overseas transfer. TCS for investments is levied at a rate of 20% for amounts exceeding ₹10 lakh.
The International Financial Services Centre Authority, or IFSCA, as the GIFT City regulator is named, has not received any commitment from the finance ministry on the same, said an official with direct knowledge of the matter.
All demands from entities in GIFT City are first discussed with the regulator, which then takes it ahead to the respective authority. In the case, the authority is the finance ministry.
Late July this year, funds operating in GIFT City had approached IFSCA for removal of TCS on money remitted from the rest of India to GIFT City for investments, executives at multiple funds told Mint.
Indians are allowed to send up to $250,000 abroad per individual for various reasons like travel, education, investing in global markets, medical treatment, and others. The TCS varies depending on the end-use of the remittance and amount.
Emails sent on 17 October to the finance ministry, IFSCA, and the Reserve Bank of India (RBI) on the request from GIFT-registered fund companies to rescind TCS on investments remained unanswered till press time.
Fund managers aver that the imposition of TCS adds friction in the investing process and effectively reduces the money investors would have invested in GIFT City outbound funds. The demand from the industry is to allow the full $250,000 for investments—whether into equity, funds, private equity, or debt markets, said Rohit Agarwal, CEO of the funds business at Dovetail Capital, a provider of integrated capital services to institutional and high net worth individuals.
Compliance burden
Removing TCS, managers added, could channel more funds into GIFT City instead of other offshore jurisdictions. High net worth Indian residents typically use mature jurisdictions such as Singapore, Mauritius, or Dubai, among others. To be sure, TCS is applied even if the funds are sent to such jurisdictions but if TCS is removed GIFT City investments, Indian investors might prefer the Indian IFSC.
Removing the compliance burden of TCS could channel money to GIFT City, a fund executive said. “Investors can claim TCS refunds through tax filings, but the process adds friction—requiring coordination with CAs and tracking deductions. Removing TCS would simplify compliance and make it easier for resident Indians to route investments through GIFT City instead of offshore centres," this executive added, requesting anonymity.
The TCS removal demand comes at a time when the number of outbound funds has increased at GIFT City. This calendar year so far, ten outbound non-retail funds have been launched from GIFT City, shows data from PMS Bazaar, a platform tracking PMS management services and alternative investment funds. The number was three as of last calendar year.
To be sure, the introduction of TCS has had a cooling-down effect on foreign remittances under the so-called Liberalised Remittances Scheme (LRS). TCS was brought in under LRS in October 2020. In the five years before, total outward remittances under LRS grew 14 times to $18.76 billion at the end of fiscal 2020, according to RBI data. The growth in such overseas remittances slowed considerably: between FY2020 and FY2025, it grew 1.5 times to $29.56 billion.
Counter views
Experts, however, point to the risks of eliminating TCS completely for investments into funds in GIFT City.
If TCS is removed for funds remitted to GIFT City, there could be no track of money which flows from India, an expert cautioned. Kunal Savani, partner at law firm Cyril Amarchand Mangaldas said that while the removal of applicability of TCS on remittances made to GIFT City may encourage more investments, it may also create a loophole for routing funds overseas.
Further, as a chartered accountant explained, TCS is not a sunk cost. The amount collected for TCS can be adjusted against the investor’s overall tax liability for the financial year. If the investor’s tax liability is insufficient to utilize the entire TCS credit, the balance can be claimed as a refund when filing the income tax return, said Ankit Jain, Partner, Ved Jain and Associates.
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