Funds seek clarity on GIFT city sops

Fund managers looking to set up new entities in Gujarat International Finance Tec-City (GIFT) have reached out to their legal experts to figure out if they need to move in immediately or could they work remotely amid the pandemic and still be eligible for tax sops.There is ambiguity on whether a fund manager has to reside inside GIFT City, or how long he or she needs to stay there every year.Many fund managers are in the process of setting up new alternative investment funds (AIF) in the Section-3 category that mainly includes hedge funds, private equity and venture capital entities.While several sops and exemptions — including tax exemptions for a decade in some cases — are offered for all AIF categories, most of those looking to set up an entity fall in the third category (AIF-3). Fund managers would like to explore whether they can continue to work from elsewhere for some time due to the Covid pandemic.Legal experts say at a time when the whole country is working from home, something similar could be allowed even for fund managers.“Given the current lockdown, Sebi (Securities and Exchange Board of India) may want to relax further by allowing fund managers to operate from distant locations,” said Nitin Potdar, partner at law firm J Sagar Associates.Many fund managers also want to know whether they need to stay put at GIFT City or the nearby Gandhinagar, or can they live in cities like Ahmedabad, which is about 25-30 kms away.“Many AIFs are looking to move into GIFT City, but the question is whether physical presence of a fund manager is required too when all of us are working from home amid the Covid pandemic,” Potdar said. Also, “every new city in the world, whether financial centre or otherwise, takes time to develop”, he added.Both Category-2 and -3 AIFs are showing increased interest in setting up funds in IFSC, mostly for pooling foreign money to invest in Indian assets but in a few cases also to pool Indian money to invest offshore, experts said.82891965“In order to get tax exemption for management fees received by a fund manager based in the GIFT City, it would be necessary to have sufficient operations within the International Financial Services Centre (IFSC) to ensure that fund management activity is carried out from the IFSC. Some managers have been in a quandary to decide to what extent they need to move operations to the IFSC — both key and support functions — in the absence of any objective criteria,” said Rajesh H Gandhi, partner, Deloitte India.As per the current regulations, any fund within GIFT City has to be managed by a manager with at least five years of experience.Many funds are looking to transfer some of their younger executives to GIFT City, industry insiders said. A fund set up in GIFT City is allowed to invest only in certain securities, but they can invest in debt.AIF-3 may be the most apt structure that could benefit the most given the current regulations, say experts. The finance minister in the 2021-22 budget announced that tax incentives would be given to foreign funds for relocating to the IFSC, including GIFT City.Currently, for a fund which is located in a destination such as Singapore or Mauritius, moving to India lock stock and barrel isn’t allowed.

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