Artha Bharat Investment Managers is shifting two of its master funds from GIFT City to Abu Dhabi, citing tax complexities under the Income-tax Act, 2025. This move highlights a major regulatory bottleneck for funds using multi-layered structures in India. Investors should monitor whether policymakers align domestic tax rules with global standards to keep GIFT City competitive against international financial hubs.
Artha Bharat Investment Managers, a firm managing $800 million in assets, has initiated the migration of two master funds from Gujarat’s GIFT City to the Abu Dhabi Global Market. This decision reflects a broader structural challenge facing asset managers who operate within India’s flagship International Financial Services Centre. While the firm intends to maintain its domestic operations, the move highlights that current tax regulations are forcing managers to rethink where they domicile their cross-border investment platforms.
At the core of this shift is the interpretation of Schedule VI of the Income-tax Act, 2025. Current regulations require that a Category III Alternative Investment Fund must hold tax-exempt status only if all its units—excluding those held by the sponsor—are owned by non-residents. This creates a difficult situation for managers attempting to build multi-layered investment vehicles. When a GIFT-based fund invests in another fund, the receiving entity risks losing its tax-exempt status because the tax treatment is determined by the immediate unit-holder rather than the ultimate investor. This approach often results in inefficient tax compliance for firms managing complex, multi-tiered portfolios.
The relocation serves as a signal for the competitiveness of India’s international financial hub ambitions. GIFT City was designed to attract global capital and provide a seamless environment for offshore investment. However, for fund managers aiming for large-scale operations, the current disconnect between the regulations set by the International Financial Services Centres Authority and the tax administration under the Department of Revenue creates operational uncertainty. This administrative split often leaves firms in a procedural limbo, making jurisdictions with clearer, more cohesive regulatory frameworks—such as Abu Dhabi—more attractive for managing multi-layered capital.
For investors, this trend highlights the importance of policy alignment. While India has been aggressive in building infrastructure for global finance, the ability to attract and retain large funds depends significantly on the flexibility of tax codes regarding institutional capital pooling. If structural uncertainties regarding tax status for multi-layered funds remain, it may encourage other asset managers to look outside of India for their master fund domiciles.
The key monitorable for market participants will be whether the government introduces amendments to the Income-tax Act to simplify tax compliance for multi-tiered fund structures. Clarity on this front is essential to bridge the gap between India's financial aspirations and the practical requirements of global fund managers.