Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation
regime of funds of IFSCA
The Finance Bill, 2025, proposes several key changes in the Income Tax Act, 1961, to continue reforms in the direct tax system through tax reliefs, removing difficulties faced by taxpayers, and rationalizing1 various provisions. Here are some of the key changes:
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
16
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]