Govt exempts ETFs from capital gains at GIFT

New Delhi: The government has exempted units of investment trusts and exchange traded funds (ETFs) issued by entities based in GIFT City or traded in exchanges there from capital gains tax.

The Central Board of Direct Taxes (CBDT) notified the exemption from capital gains tax any unit of investment trust; a unit of a scheme; and a unit of an ETF launched under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

Gujarat International Finance Tec-City (GIFT)-IFSC is being promoted as a tax-neutral enclave for the financial sector.

Nangia Andersen LLP Partner-Financial Services Sunil Gidwani said the law currently provides for exemption from capital gains tax on various securities either trading on the stock exchanges in GIFT City or securities issued by entities set up in GIFT City. The new fund regime provides for funds to be set up as investment trusts, and hence, the law required the inclusion of units issued by such trusts for the purpose of exemption from capital gains.

“Similarly, ETF listed and trading on the stock exchanges in GIFT City would now qualify for capital gains tax exemption. These changes would further expand the scope of incentives available for funds and stock market trading in IFSC,” Gidwani added.

AKM Global Tax Partner Amit Maheshwari said the notification is in line with the objective of making the International Financial Services Centre a hub for financial services in the world and incentivizing non-resident investors on a recognised stock exchange.

“It is important to note that to take advantage of this exemption, the consideration for such a transaction should be paid or payable in foreign currency. The securities, which are added through the new notification, include (i) a unit of Investment Trust, (ii) a unit of a Scheme, and (iii) a unit of an exchange-traded fund. These relaxations are a welcome move by the government and will make it globally more competitive for the non-resident investors,” Maheshwari added.