Artha Bharat Investment Managers’ decision to move the master funds of two of its six GIFT City funds to Abu Dhabi Global Market (ADGM) has brought into focus a mismatch between India’s tax rules and the ambition to develop GIFT City as a hub for cross-border capital flows.
The $800-million asset manager says the move goes beyond concerns over tax benefits available to funds operating from the Gujarat-based international financial services centre. The more fundamental problem, according to founder Sachin Sawrikar, is that the Income-tax Act does not adequately recognise the ultimate non-resident investor when capital is routed through an intermediate GIFT-based fund.
This has made it difficult for Artha Bharat to build the outbound-to-outbound investment structure it had envisaged — one in which money raised overseas is pooled in GIFT City, channelled through another GIFT vehicle and then invested in overseas markets.
The move was initially linked to concerns that the firm's claim to a tax deduction under Section 80LA had been rejected. Artha Bharat has since clarified that the rejection concern arose from a portal glitch. Its decision to shift the two master funds, however, reflects difficulties with the tax treatment of layered fund structures.
Artha Bharat had targeted doubling its assets to $1.5 billion over three years and had grown from a single-fund platform to six funds within two years of entering GIFT City.