SEBI fiat for off-market transfer by FPIs to IFSC

Our Bureau Mumbai | Updated on June 01, 2021

Allows private banks to conduct due diligence of FPI assets

Market regulator SEBI has allowed private banks, who are approved as designated depository participants (DDPs), to conduct due diligence of foreign portfolio investor (FPI) assets that have to be shifted to India.

The transfer of assets is being allowed without prejudice to any provisions of tax laws and foreign exchange management act (FEMA). Banks like Deutsche Bank, DBS, Axis, Edelweiss Custodial Services, HDFC, HSBC among others act as DDPs.

One-time transaction

On Tuesday, SEBI said to facilitate such ‘relocation’ it has been decided that a FPI (original fund or its wholly owned special purpose vehicle) can approach its DDP for approval of a one - time ‘off - market’ transfer of its securities to the ‘resultant fund’.

As a one-time incentive, FM Nirmala Sitharaman had offered these offshore funds a ‘complete tax-exemption’ for shifting their assets, lock stock and barrel, to India. These funds can now relocate to the International Financial Services Centre such as the GIFT City in Gujarat and enjoy zero tax on transfer of their assets from other countries. Experts say this is a major boost for foreign funds as GIFT City has zero tax for 10 years.

Also read: FPIs have pulled out ₹13,000 cr from equities so far in FY22

“One-time opportunity has been provided for offshore funds to re-domicile to IFSC. Several offshore funds were evaluating this option, but were concerned about the tax impact. FM’s proposal is now a tax-neutral arrangement. It can develop IFSC as India’s fund management hub and will encourage offshore funds to relocate here before March 2023,” said Suresh Swamy, a chartered accountant.

Both BSE and NSE offer trading in derivatives of Indian equity and bullion assets that are tax-free. No separate registration is required to trade in GIFT for those already approved by SEBI.

Funds worth billions of dollars, with underlying Indian assets, are currently based in Mauritius, Singapore, Dubai, Cayman Islands etc. They are located in these said locations for lax tax laws and lower rates prevailing there. GIFT City offers them much more.

Published on June 01, 2021

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