Jolt to India's rich planning investments abroad via GIFT city as govt halts approvals over tax evasion concerns
Gandhinagar: Indian regulators have halted the approval of local family offices setting up investment funds in the country's new financial hub, due to concerns that these structures might be used to bypass taxes and capital controls, Bloomberg reported citing sources.
The regulator of Gujarat International Finance Tec-City (GIFT City) has stopped greenlighting family investment funds following feedback from the Reserve Bank of India (RBI), the sources said, requesting anonymity due to the sensitivity of the matter.
The RBI is concerned that relaxing capital controls for such instruments could create opportunities for money laundering, they added.
This decision may hinder GIFT City’s goal of becoming a prime destination for wealthy individuals to manage their overseas investments.
Located in Gujarat, the finance hub was designed as a free-market zone, free from local tax and capital flow regulations.
In January, the special economic zone granted its first in-principle approval to billionaire Azim Premji’s family office to invest abroad, sparking optimism among other applicants, Bloomberg News had reported.
However, with no final approvals since then, family offices are now considering establishing investment operations in countries like Singapore and Dubai, the sources noted.
Representatives for the International Financial Services Centres Authority, which regulates GIFT City, as well as the RBI and Premji’s office, did not respond to requests for comment.
India maintains strict controls on capital outflows, with foreign exchange regulations capping overseas investments for each resident at $250,000.
This limit covers property purchases, investment in shares and securities, and the establishment of joint ventures or subsidiaries.
Resident Indians can invest abroad through instruments provided by global banks and wealth advisors like HSBC Holdings Plc, 360 One WAM, and Nuvama Wealth Management in GIFT City.
The recent regulatory action is intended to close a loophole that would have allowed resident Indians to transfer more than the permitted capital abroad, according to the sources.
This move comes as India experiences a wealth boom, with the number of individuals possessing more than $30 million in assets projected to increase by 50% between 2023 and 2028, as per a Knight Frank wealth report.
As these individuals seek to diversify their investments, they have become key targets for banks seeking new wealth management clients.
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