Mint Explainer: Why Gift City is seeking tax parity with domestic mutual funds
In May, the International Financial Services Centres Authority, or IFSCA, the unified financial sector regulator at Gift City, sent a clutch of recommendations to the central government. One suggestion was to bring parity in the taxation of funds set up in Gift City with that applicable for domestic mutual funds.
The International Financial Services Centre, or IFSC, was established at the Gujarat International Finance Tec-City, or Gift City, a decade ago to allow businesses to transact in foreign currencies and provide a gateway for all inbound and outbound investments.
Amid the recent pre-election debate on inheritance tax, Gift City emerged as a potential solution for wealthy Indians looking to invest in US markets while sidestepping the country’s steep inheritance tax.
The US government levies a tax on heirs at a rate depending on the relationship with the deceased if the value of the assets inherited exceeds $60,000 at the time of an investor’s passing. Indians investing in US markets via pooled vehicles through Gift City can avoid this tax for reasons explained below. But to make this route attractive to wealthy Indians, IFSCA is seeking tax parity for Gift City funds. Mint explains how this could work.
Indians have been investing in US markets through the Reserve Bank of India’s liberalised remittance scheme, which allows investments of up to $250,000 a year in foreign-held securities. To avoid the US’s inheritance tax, financial advisers suggest pooling investments in a Gift City fund that will invest in US markets.
The US inheritance tax applies to inherited assets located in the country, but this can be avoided if the investment in such assets is executed through pooled investment vehicles based in an offshore
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