Union Budget 2025-26 (Full) + Finance Bill, 2025

VIII. Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA

In order to further incentivize operations from IFSC, it is proposed to make the following amendments:

(I) The existing provisions of clause (viiad) of Section 47 of the Act provide that any transfer by a shareholder or unit holder or interest holder, in a relocation, of a capital asset being a share or unit or interest held by him in the original fund in consideration for the share or unit or interest in the resultant fund shall not be regarded as transfer for the purposes of calculating capital gains. The Explanation to the clause inter-alia, provides that “resultant fund" means a fund established or incorporated in India, which has been granted a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund, is located in any International Financial Services Centre and is subject to certain conditions provided therein. Thus, the relocation of original funds to the resultant fund in the IFSC is a tax-neutral transaction.

(II) The income of retail schemes and Exchange Traded Funds (ETFs) located in the IFSC and, inter alia, is regulated under the International Financial Services Centres Authority Act, 2019 was granted exemption along with previously exempted specified funds as per section 10(4D) of the Act vide the Finance (No.2) Act, 2024. It is proposed to include such retail schemes or Exchange Traded Funds (ETF) within the definition of resultant fund for the purposes of clause (viiad) of section 47 of the Act so that relocation of original funds to such funds in the IFSC is also a tax-neutral transaction.

2. This amendment will take effect from the 1st day of April, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

[Clause 13]

 

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Full Text:

Union Budget 2025-26 (Full) + Finance Bill, 2025

Tax-neutral relocation: inclusion of retail schemes and ETFs in IFSC resultant fund definition enables tax-neutral transfers for investors. The amendment adds retail schemes and Exchange Traded Funds (ETFs) established and regulated in the IFSC to the definition of resultant fund, so that transfers by investors of shares, units or interests in an original fund in exchange for interests in such IFSC funds are not treated as transfers for capital gains purposes, preserving the tax-neutral nature of relocations into IFSC funds.