Venture Capital

Budget 2021 eases startup funding via GIFT City-IFSC route


New Delhi: In order to facilitate the onshoring of the offshore funds into India, the finance minister on Monday announced new tax incentives for units under the International Financial Services Centre, or IFSC. This will allow international funds to relocate to India and avail tax exemption, experts said.

The move helps to move existing feeder funds to IFSC. So even existing funds will be able to take benefit of the IFSC regime,” said Shagoofa Rashid Khan, Partner at Cyril Amarchand Mangaldas, a leading law firm. According to her, so far, only new vehicles could benefit under the IFSC and today’s announcement will have a wider impact on the sector.

Earlier in the past, under the GIFT City-IFSC initiative, the government had announced tax sops for new AIFs to be set up there. However, the Union Budget 2021-22 announcement will help scale up IFSC immediately.

“A noteworthy measure has been to introduce a “warehousing” mechanism for offshore funds who currently invest into India—a system that allows them to move their fund to GIFT IFSC without the transfer being subject to tax,” said Siddharth Pai, founding partner and CFO at 3one4 Capital and co-chair-regulatory affairs committee at IVCA.

According to Pai, this is a huge boost to the Indian fund ecosystem as part of the “Onshore the Offshore” program that has been in vogue for the past few years. This will help ensure that the gateway to Indian equities will be in India and the need to have a foreign launchpad in order to invest into Indian equities is mitigated.”

Also, the move helps bring the management fee into India. “As the feeder will now be in IFSC so all management fee value gets captured in India and hence India will command higher margin management fee vs advisory fee,” Khan of Cyril Amarchand Mangaldas added.

“Most of the venture capital players, who operate either out of Singapore or Mauritius, will find this particularly attractive from a deal-making perspective,” said Ritesh Kumar, partner at Indus Law. “The quality of this exemption will help the deal complexities go down substantially.”


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