The Indian Income-tax Law contains provisions which enable the tax neutral transfer of offshore funds to IFSC.
1] As per these provisions, where an offshore fund or its SPV registers an AIF located in IFSC and transfers its assets to the AIF, the asset transfer will be tax neutral.
2] Further, the exchange of shares / units / interest in the offshore fund for shares / units / interest in the AIF in IFSC will also be tax neutral for the investors.
3] These provisions contain several eligibility conditions, one of which is that the offshore fund should be a tax resident of a country which has a tax treaty with India, or should be INCORPORATED IN A COUNTRY SPECIFICALLY NOTIFIED FOR THIS PURPOSE.
4] In this respect, the CBDT vide Notification 46/2022 has recently notified 150 countries who will be eligible to avail benefits of the above regime, provided they satisfy the other conditions stipulated.
5] Accordingly, offshore funds in countries like Bermuda, BVI, Cayman Islands, Isle of Man, Guernsey, Jersey, Panama which do not have an existing tax treaty with India; as well as several other countries such as US, UK, Singapore and Canada can evaluate a tax neutral transfer of their assets to an AIF in IFSC.
CBDT Notification link: https://incometaxindia.gov.in/communications/notification/notification-46-2022.pdf