Budget 2024: How tax-free retail funds will benefit NRIs
MUMBAI : Shortly after the Union finance minister Nirmala Sitharaman presented the budget 2024 on 23 July, executives of a foreign investors-backed asset management company rushed to New Delhi to seek clarification on a key issue: Can foreigners invest in India through a mutual fund-like structure with zero tax? The answer is yes as long as the money is not directly invested in equities. The Union Budget 2024-25 proposed that “retail schemes and exchange-traded funds (ETFs) set up in Gujarat International Finance Tec-City, or GIFT City, will now enjoy tax exemptions along similar lines as available to specified funds". "Now retail funds in GIFT will get the same tax benefit like category III Alternative Investment Funds (AIFs)," said Suresh Swamy, partner, Price Waterhouse & Co.
Llp-Gift IFSC Branch. AIFs are high-risk investment vehicles meant for high-net-worth individuals. Category III AIFs invest in securities of listed and unlisted investee companies, derivatives, complex or structured products, or other AIF units.
In a bid to encourage foreign investments, the government made investments in India through GIFT City tax-free. If a fund has an underlying other than stocks, they don’t have to pay any tax in India. If the underlying was equities, then the domestic tax was applicable.
HDFC AMC and Mirae AMC used this structure to launch AIFs In GIFT which was feeding into their domestic mutual fund schemes. Since the AIFs did not have equities as underlying, they are treated tax-free in India. A similar tax benefit will accrue if the fund’s underlying is in debt or derivatives.
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