Relief from double taxation on ODIs extended at the Gift City IFSC

Experts say move will make investments more lucrative

The Central Board of Direct Taxes (CBDT) has extended the exemption on income received by overseas investors through the distribution of income from offshore derivative instruments (ODIs) of entities based at the International Financial Services Centres (IFSC).

Experts said that the move will make investments more lucrative and deepen the product offerings by offshore banking units based out of Gift City IFSC.

Financial institutions are already required to pay tax on the transactions involving equity shares.

The new provisions remove double taxation in the hands of overseas investors during distribution of the same amount on which financial institutions have already paid tax.

An amendment in the Income Tax Act has been introduced through a notification dated July 17 while the decision was first brought through the Finance Act 2023.

“Reflecting the government’s commitment to foster a favourable environment for growth of IFSCs in India, the amendment was brought to rectify the previous issue of double taxation of the distributed income that occurred once at the stage of receipt by the banking unit under Section 115AD of the IT Act and twice at the stage of receipt of income by the non-resident,” said Sandeep Jhunjhunwala, partner, Nangia Andersen.

Further, the notification has also extended the definition of ‘specified funds’ to category I and category II alternative investment funds (AIFs) regulated under the International Financial Services Centres Authority (IFSCA).

With this change, investments in AIFs based out of Gift City IFSC could become more attractive.