According to the proposal, any income accrued from trades in offshore derivative instruments (ODIs) by a foreign investor in the Gandhinagar-based financial centre will be exempt from taxes. ODIs are instruments used by foreign investors, who want to bet on a market without registering with the domestic securities regulators.
“The tax exemptions provided for ODI instruments issued from IFSC (International Financial Services Centre), Gift City would make it cost-efficient for the foreign funds issuing p-notes to relocate to IFSC,” said Siddharth Shah, partner, Khaitan & Co.
“Most FPIs currently write p-notes from foreign jurisdictions, but now IFSC will offer better tax efficiency along with easier compliance rules.”
Experts said till now this income tax exemption was only available to a specific category of non-delivery forwards (NDFs). It did not cover synthetic instruments such as p-notes. Now, the exemption has been extended to all derivatives.
“While certain changes on the regulatory front are still awaited on the matter, the proposal will definitely give fillip to issuance of p-notes from the Gift City,” said Suresh Swamy, partner, Price Waterhouse & Co.
Several international banks have already set up their operations in the Gift City. Some ODI instruments are already popular among the hedge funds and trading clients of these banks in the international financial centre.
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