India’s Tax Authority Issues Notification for Non-Resident Investors in Financial Products via IFSC Units ( January 8, 2024 )

The Ministry of Finance notification delineates the criteria for the recognition of investment in a financial product by non-residents, particularly when the income is deposited in the non-resident’s account with the Offshore Banking Unit of the IFSC, as specified in section 80LA of the Income-tax Act, 1961.

India’s Ministry of Finance, via the Central Board of Direct Taxes, has issued a crucial advisory (Notification S.O. 66(E) dated January 4, 2024) under clause (4G) of section 10 of the Income Tax Act, 1961. This notification specifically focuses on non-residents engaging in investment activities through a contract with a capital market intermediary, particularly a unit of an International Financial Services Centre (IFSC).

Capital market intermediaries include merchant bankers, lead merchant bankers or lead managers, registrars and share transfer agents (RTA), underwriters, debenture trustees, bankers to an issue, portfolio managers, as well as stockbrokers and sub-brokers.

India’s IFSC is located at the Gift City in the state of Gujarat.

Key points:- 

• The CBDT notification empowers non-residents to participate in investment activities through recognized IFSC Units. Notably, the income generated must be received in the non-resident’s account with the Offshore Banking Unit of the respective IFSC, aligning with section 80LA  [Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre] and its associated tax implications.
• The notification establishes a structured avenue for non-residents to invest in financial products in India through recognized IFSC Units. The Offshore Banking Unit of the IFSC plays a crucial role in facilitating and managing the income derived from these investments. The notification unfolds new possibilities for non-resident investors, providing clarity on the regulatory framework and tax considerations.