New SEBI rule is a tax-free gift for foreign portfolio investments

Foreign Portfolio Investors (FPIs) will now be allowed to invest from Gujarat International Finance Tec-city (GIFT), says SEBI. This move will help the FPIs to head towards the international financial services centre (IFSC) in Gandhinagar. 

Businesses carrying their operation from GIFT city enjoy a ten year tax holiday i.e. they are exempt from paying income tax for ten years. The move to allow FPI to invest in the GIFT city comes as a relief to foreign investors, who were disturbed by our FM, Nirmala Sitharaman’s tax proposals in her maiden budget. 

The new rules of SEBI state the FPIs trading in India’s stock market will face zero tax and no transaction charges will be levied if they register themselves with the IFSCs.

“Entities established in IFSC will be deemed to have met the jurisdiction criteria for FPIs,” SEBI’s press release stated on Wednesday after its board meeting in Mumbai.

Also Read: FPI conversion expected to get one-time tax waiver

No taxes, such as income tax, tax on LTCG or STCG, minimum alternate tax, dividend distribution tax, are levied on the GIFT city. The FPIs now trading on the BSE and the NSE will have to pay securities transaction tax (STT) only. However, if FPIs trade on the BSE and the NSE located in GIDT city, where no transaction tax is applicable, they will not have to pay STT also. 

FPIs can trade derivative contracts in the GIFT city and buy shares on the NSE and the BSE in Mumbai. It will be similar to trading Nifty futures in Singapore stock exchange and cash it in the Indian market. However, the government will keep a check on round-tripping of money as the Prevention of money laundering act is applicable to FPIs in the GIFT city. 

Moreover, SEBI has relaxed other registration and KYC norms for FPIs too. Even the top FPIs from GIFT city can issue participatory notes, favoured instruments by large investors. 

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