Global investing through JioBlackRock GIFT City: A guide to taxation
Global investing through JioBlackRock GIFT City: A guide to taxation
What is a Retail Outbound Fund?
Access global investment opportunities through GIFT City
JioBlackRock GIFT City Retail Outbound Fund is designed to give eligible investors access to investment opportunities outside India. The fund covered in this guide invests in an underlying fund of BlackRock Financial Management Inc., which in turn invests across global markets.
You→JioBlackRock GIFT City Retail Outbound Fund→Underlying BlackRock fund→Global markets
This is a fund-of-funds structure. You hold units of the JioBlackRock GIFT City fund rather than directly owning the securities held by the underlying fund of BlackRock Financial Management Inc.. This structure influences how income, gains and tax are recognised, and how they are reflected in the NAV you see.
Who pays the tax, and how does the accumulating share class help?
Applicable Indian tax arising within the JioBlackRock GIFT City fund is paid or provided for by the fund using its own PAN, not the investor's PAN. The tax paid by the fund does not appear as tax credit in the investor's Form 26AS. Instead, its economic effect is reflected in the fund's NAV.
The tax treatment when an investor redeems units or receives a distribution depends on the investor’s eligibility, residential status and the applicable provisions of Indian tax law. Eligible investors may benefit from specific tax exemptions or withholding-tax relief available for qualifying IFSC structures, subject to prescribed conditions.
Why is there no dividend tax at the GIFT City fund level?
The JioBlackRock GIFT City fund will primarily invest in the accumulating share class of the underlying BlackRock fund. In an accumulating share class, income earned by the underlying portfolio is retained and reinvested within that fund instead of being paid out as a dividend to the GIFT City fund.
Because the accumulated income is not distributed to the JioBlackRock GIFT City fund, there is no dividend income received by it from this share class and, therefore, no dividend tax at the GIFT City fund level on that retained income. The reinvested income may instead contribute to the value of the underlying fund units.
When does capital gains tax arise within the fund?
Capital gains tax is considered when the JioBlackRock GIFT City fund sells or redeems units of the underlying BlackRock fund. The rate depends on how long those units have been held. Units held for more than 24 months are treated as long term, while units held for 24 months or less are treated as short term.
14.95% Effective long-term capital gains rate for units held for more than 24 months
42.74% Effective short-term capital gains rate for units held for 24 months or less
35.88% Effective dividend-income rate in a direct-investing structure, where applicable
The 14.95% and 42.74% rates include the applicable surcharge and health and education cess. The 35.88% rate is shown only to explain the difference from a structure that invests directly in overseas shares and receives dividends. In the JioBlackRock structure described here, the accumulating share class retains and reinvests income, so this dividend tax does not arise at the GIFT City fund level on that retained income.
How does fund-level taxation affect your NAV?
The daily published NAV reflects applicable expenses and tax provisions. Investors therefore see the economic impact of tax through the value at which they subscribe or redeem rather than through a separate tax charge each time the portfolio changes.
The fund provides for tax on realised gains and may also provide for tax on unrealised gains. For the Subscription NAV, unrealised gains are assumed to be long term and tax is provided at 14.95%. If some of those gains would be short term at the time of redemption, the Redemption NAV provides for the additional tax represented by the difference between 42.74% and 14.95%.
This helps allocate the tax burden fairly. Without this adjustment, an investor redeeming today could leave before bearing an appropriate share of a future tax liability, causing continuing investors to absorb more of that cost.
See an illustrative Subscription NAV and Redemption NAV example
Assume opening assets of USD 1,000,000 represented by 100,000 units, realised short-term gains of USD 15,000, unrealised gains of USD 50,000 and accrued expenses of USD 5,000. Assets before tax are USD 1,060,000, or USD 10.60 per unit.
Subscription NAV: Tax of USD 6,411.60 is provided on realised short-term gains and USD 7,475 on unrealised gains assumed to be long term. Net assets are USD 1,046,113.40 or approximately USD 10.46 per unit.
Redemption NAV: If the unrealised gain is short term for redemption, the related provision is USD 21,372. Together with USD 6,411.60 on realised gains, net assets are USD 1,032,216.40 or approximately USD 10.32 per unit.
The gap reflects the additional short-term tax provision. The example is illustrative and does not represent actual fund performance or NAV.
What does TCS mean for your remittance?
For a resident individual investing under the Liberalised Remittance Scheme, the authorised dealer currently collects TCS at 20% on the portion of eligible investment remittances exceeding INR 10 lakh in a financial year. Unlike fund-level tax, TCS is reported against the investor's PAN.
TCS is not a fund fee or a final tax in itself. It can be adjusted against the investor's income-tax liability or claimed as a refund, subject to the applicable rules and matching tax records. Investors should retain the remittance advice and Form 27D, and verify the credit in Form 26AS and AIS.
What should you disclose in your income-tax return?
Income received from the fund should be disclosed as exempt income under “Others” in the relevant ITR schedule. Schedule FA disclosure is not required because the investor holds units of an India-domiciled fund rather than directly holding the overseas securities owned through the underlying structure.
Keep your account statements, remittance records, TCS certificate, redemption or distribution advice and the annual tax certificate issued for the scheme that may be provided by the FME from time to time for your records and tax reporting, as applicable. Non-resident investors should separately consider tax in their country of residence, while corporate and other non-individual investors should obtain advice appropriate to their circumstances.
Key takeaways
- JioBlackRock GIFT City Retail Outbound Fund provide eligible investors with access to global investment opportunities.
- The fund covered in this guide invests primarily in the accumulating share class of an underlying BlackRock fund.
- Applicable Indian tax within the fund is paid or provided for using the fund's PAN, not the investor's PAN.
- No dividend tax arises at the GIFT City fund level on income retained and reinvested within the accumulating share class.
- Capital gains within the fund are currently taxed at an effective 14.95% for long-term gains and 42.74% for short-term gains.
- Eligible investors do not pay Indian capital gains tax again on redemption, and no TDS is deducted from eligible redemption or distribution payments.
- The daily NAV reflects applicable tax provisions on realised and unrealised gains.
- TCS at 20% currently applies to the portion of eligible LRS investment remittances above INR 10 lakh and can be claimed as tax credit.
- Fund income is disclosed as exempt income, while Schedule FA disclosure is not required for the units described here.