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By Siri Bulusu
India is proposing to exempt gains made through offshore investment centers from capital gains tax to draw foreign investments into the Indian market.
Finance Bill 2018, published Feb. 1, suggested an amendment to India’s Income Tax Act, 1961 that would no longer regard any transfer of assets between non-residents and International Financial Services Centers, or IFSCs, as a “transaction,” thus exempting it from capital gains tax and the secure transactions tax.
The tax incentive—effective starting Financial Year 2018-2019—is one measure India is introducing to develop a domestic “world-class” international financial services center, according to a Feb. 1 Ministry of Finance statement.
“From India’s perspective this is a good move that will promote offshore exchanges and bring back investment volume from Singapore and Hong Kong where the compliance threshold is low,” Rajesh Gandhi, tax partner at Deloitte Haskins & Sells, told Bloomberg Tax Feb. 2 telephone interview.
The amendment to Section 115AC(1) of the Indian Tax Act, 1961 lists capital assets, global depository receipts, rupee-denominated company bonds and derivatives among assets that will be included in the exemption.
Investments made into Singapore and Hong Kong’s stock exchanges do not require investors to pay tax or provide tax identification. Gandhi added that these jurisdictions also have less onerous “know your customer,” or KYC, rules.
“For regular investments into listed assets on the Bombay Stock Exchange you have to pay the secure transaction tax, capital gains tax, register using a personal tax identification number and register as a foreign indirect investor,” Gandhi said, adding that the lax regulations on IFSCs will likely draw investments.
The Finance Bill also proposes the reduction of an alternate minimum tax applicable to non-corporate entities to 9 percent from 18.5 percent to be on par with the minimum alternate tax applicable to domestic companies.
“This will encourage non-corporate entities such as LLPs, firms and individuals to make investments into IFSCs,” Vispi T. Patel, head of Mumbai-based chartered accounting firm Vispi T. Patel & Associates, told Bloomberg Tax Feb. 2.
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