Archive / Investment Adviser (Level 2) / Taxation of Other Products
nism-series-xb-section-10-4d-115ad-gift-city-ifsc-tax-exemption[ INVESTMENT ADVISER (LEVEL 2) ]
Under Section 10(4D) and Section 115AD of the Income Tax Act, what special tax incentives are granted to specified Investment Funds located in the International Financial Services Centre (GIFT City IFSC)?
[ A ]GIFT City funds must pay 50% extra tax.
[ B ]IFSC funds are prohibited from investing in foreign assets.
[ C ]100% tax exemption on capital gains arising from the transfer of offshore securities, derivatives, and foreign currency debt securities on IFSC exchanges, along with a 10-year 100% corporate tax holiday u/s 80LA.[ CORRECT ]
[ D ]Zero tax exemptions are provided in GIFT City.
Takeaway
The correct answer is C: specified investment funds in GIFT City IFSC get 100% capital gains exemption on transfers of offshore securities, derivatives and foreign currency debt securities on IFSC exchanges, plus a 10-year 100% corporate tax holiday under Section 80LA.
Derivation
GIFT City was built to compete with offshore financial centers like Singapore and Dubai for fund-management business that would otherwise be booked outside India entirely. To make that competitive, the tax code offers a deliberately generous package: Section 10(4D) exempts capital gains on specified securities transferred on IFSC exchanges for eligible investment funds, while Section 80LA gives the fund/unit itself a 100% profit-linked deduction for any 10 consecutive years out of the first 15 years of operation. The intent is to make routing global capital through an Indian IFSC as tax-neutral as routing it through a traditional offshore hub, which is the policy rationale examiners expect candidates to understand.
Why the others fail
A — GIFT City funds must pay 50% extra tax.
Directly contradicts the policy intent; GIFT City IFSC funds receive substantial tax incentives, not a punitive 50% extra tax.
B — IFSC funds are prohibited from investing in foreign assets.
False; a core feature of IFSC funds is facilitating investment into foreign/offshore assets, not prohibiting it.
D — Zero tax exemptions are provided in GIFT City.
Contradicts the entire policy design; Section 10(4D) and Section 80LA provide substantial exemptions, not zero benefits, to IFSC funds.
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