The demand of GIFT City outgoing funds to revoke TCS reaches the finance ministry

Copyright © HT Digital Streams Limited All rights reserved. GIFT City funds want to remove tax at source to bring home HNI money going to Dubai, Singapore office buildings at the Gujarat International Finance Tec-City, Gandhinagar. (REUTERS) Summary The GIFT City regulator has channeled a demand from fund companies to the Union finance ministry that investments of Indian investors be exempted from tax collected at source (TCS). Fund managers argue that the removal of TCS will simplify compliance and attract more investment to GIFT City. The regulator of GIFT City, short for Gujarat International Finance Tec City, has conveyed to the Union finance ministry an important demand from fund companies operating there to exempt tax collected at source, or TCS, on investments made by Indians in the international financial services center (IFSC). GIFT City, India’s first IFSC, is considered a foreign jurisdiction and when an Indian investor sends money to a fund registered there, the transfer attracts TCS like any other overseas transfer. TCS for investments is levied at the rate of 20% for amounts above ₹ 10 lakh. The International Financial Services Center Authority, or IFSCA, as the GIFT City regulator is called, has not received any commitment from the finance ministry on the same, an official with direct knowledge of the matter said. All claims from entities in GIFT City are first discussed with the regulator, who then takes it to the respective authority. In this case, the authority is the Ministry of Finance. In late July this year, funds operating in GIFT City approached IFSCA for removal of TCS on money remitted from the rest of India to GIFT City for investments, executives at various funds told Mint. Indians are allowed to send up to $250,000 per individual abroad for various reasons such as travel, education, investment in global markets, medical treatment and others. The TCS varies depending on the end use of the remittance and amount. Emails sent to the finance ministry, IFSCA, and the Reserve Bank of India (RBI) on October 17 regarding the request of GIFT-registered fund companies to revoke TCS on investments remained unanswered till press time. Fund managers believe that the introduction of TCS adds friction to the investment process and effectively reduces the money that investors would have invested in GIFT City outgoing funds. The industry requirement is to allow the full $250,000 for investments — whether in equity, funds, private equity or debt markets, says Rohit Agarwal, chief executive of the funds business at Dovetail Capital, a provider of integrated capital services to institutional and high-net-worth individuals. Compliance burden The removal of TCS, executives added, could channel more funds to GIFT City instead of other offshore jurisdictions. High net worth Indian residents usually use mature jurisdictions such as Singapore, Mauritius or Dubai, among others. To be sure, TCS is applied even if the funds are sent to such jurisdictions, but if TCS GIFT City investments are removed, Indian investors may prefer the Indian IFSC. Removing the compliance burden from TCS could channel money to GIFT City, a fund manager said. “Investors can claim TCS refunds through tax filings, but the process adds friction – requiring coordination with CAs and tracking of deductions. Removing TCS will simplify compliance and make it easier for resident Indians to channel investments through GIFT City instead of offshore centers,” this executive added, requesting anonymity. The demand for TCS removal comes at a time when the number of outgoing funds at GIFT City has increased. This calendar year so far, ten outbound non-retail funds have been launched from GIFT City, shows data from PMS Bazaar, a platform that tracks PMS management services and alternative investment funds. The number was three as of last calendar year. To be sure, the introduction of TCS had a chilling effect on foreign remittances under the so-called Liberalized Remittances Scheme (LRS). TCS was brought under LRS in October 2020. In the previous five years, total outgoing remittances under LRS grew 14 times to $18.76 billion at the end of fiscal 2020, according to RBI data. The growth in such overseas remittances has slowed significantly: between FY2020 and FY2025, it grew 1.5 times to $29.56 billion. Opposing views However, experts point out the risks of eliminating TCS completely for investments in funds in GIFT City. If TCS is removed for funds remitted to GIFT City, there can be no trace of money flowing out of India, warned an expert. Kunal Savani, partner at law firm Cyril Amarchand Mangaldas, said while removing applicability of TCS on remittances made to GIFT City could encourage more investment, it could also create a loophole to send funds overseas. Furthermore, as a chartered accountant explained, TCS is not a sunk cost. The amount collected for TCS can be adjusted against the investor’s overall tax liability for the financial year. If the investor’s tax liability is insufficient to avail the entire TCS credit, the balance can be claimed as a refund when filing the income tax return, said Ankit Jain, Partner, Ved Jain and Associates. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #TCS #tax collection at source #Ministry of Finance #HNI Read next story