ETFs, units of scheme to get tax exemption at IFSC

September 14, 2023
Posted by: OptimizeIAS Team
Category: DPN Topics

ETFs, units of scheme to get tax exemption at IFSC

Subject: Economy

Section: Capital market

In News: Government expands the list of securities that will be eligible for tax exemption on a recognised stock exchange in an International Financial Services Centre (IFSC).

Key Points:

In general any capital gain on transfer/sale of securities or other assets attracts capital gains tax as per the Income tax act, unless otherwise exempted.
Under Income Tax Act, any sale of bonds or depository receipt, rupee denominated bonds of an Indian company and derivatives by a non-resident on IFSC exchanges is tax exempt if the sale is paid in foreign currency.
Changes:
- Now units of a exchange traded fund (ETF) scheme, investment trust and that of an exchange traded fund are now eligible for exemption as well.
- The new fund regime provides for funds to be set up as investment trust. The change brings units issued by such trusts under capital gains exemption.
- Similarly, ETFs listed and traded on the stock exchanges in GIFT City would now qualify for capital gains tax exemption.
Impact of the change:
- These changes would further expand the scope of incentives available for funds and stock market trading in IFSC.
- The notification widens the relaxation for units of ETFs, REITs and InvITs as several such funds are looking to get listed at IFSC.
- The move may give a boost to the setup of REITs and In- VITs as well as launch of ETFs at IFSC,

Capital gains

Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset.

Exchange-traded fund (ETF)

ETFs are a sort of investment fund that combines the best features of two popular assets: They combine the diversification benefits of mutual funds with the simplicity with which equities may be exchanged.
An exchange-traded fund (ETF) is a collection of investments such as equities or bonds.
ETFs will let you invest in a large number of securities at once, and they often have cheaper fees than other types of funds. ETFs are also more easily traded.