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The budget’s changes will benefit funds set up in the International Financial Services Centre (IFSC) that raise money from resident investors. However, these changes could hurt the Net Asset Values (NAVs) of offshore foreign portfolio investors (FPIs).
For foreign portfolio investors (FPIs), the proposed changes include increasing capital gains tax rates on listed equity shares from 10% to 12.5% for long-term gains and from 15% to 20% for short-term gains.
These higher rates will apply to all transfers of listed shares. As a result, the NAVs of offshore FPIs subject to tax on accrued gains may be affected.
On the other hand, the International Financial Services Centre (IFSC) is becoming an important location for fund managers to establish funds, especially to raise funds from offshore investors for investments in capital markets.
To further support IFSC funds, the same tax regime currently applies to certain funds in IFSC and will be extended to retail schemes and ETFs. Additionally, there will be a reduction in the long-term capital gains tax rates and the qualifying period for “long-term” gains, benefiting funds established in IFSC that raise money from resident investors for investments outside India.
Furthermore, finance companies and global treasury centres established in IFSC will be eligible for a 10-year tax holiday. The proposed extension of certain benefits to finance companies in the IFSC aims to encourage cross-border funding activities in the IFSC.
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