Artha Bharat Moves Two Funds from GIFT City to Abu Dhabi Over Tax Issues

Artha Bharat Investment Managers IFSC, a fund management entity operating in GIFT City with assets exceeding $800 million, has decided to transfer two of its funds to Abu Dhabi Global Market (ADGM). The relocation is primarily driven by uncertainties around taxation and the complex compliance requirements faced in GIFT City.

The funds involved in this move include the $112 million Artha Global Multiplier Fund, which focuses on investing in US consumer-related sectors and is exclusively available to non-resident Indians (NRIs). The other fund is the recently launched Artha Bharat Absolute Return Fund, an arbitrage fund centered on Indian securities.

According to Sachin Sawrikar, the founder and CEO of Artha Bharat, the firm does not find the tax framework in GIFT City straightforward. He pointed out, "We do not believe that taxation is smooth here (GIFT City). There is a lot of uncertainty. Our FME was disallowed the tax deduction under Section 80LA, a matter we are pursuing. Leading fund jurisdictions generally tax at the investor level. In India, there are several categories, with differentiated taxation." Section 80LA of the Income Tax Act, 1961, allows tax deductions for income earned by Offshore Banking Units (OBUs) in Special Economic Zones (SEZs) and units in International Financial Services Centres (IFSCs), but Artha Bharat has faced challenges claiming these benefits.

Despite the move of these two funds to ADGM, Sawrikar clarified that this is not a full exit from GIFT City. The company will continue managing its other funds from GIFT City, maintaining support services such as risk management and technology for entities located in ADGM, Mauritius, and Singapore. This indicates a continued operational presence in GIFT City, while strategic fund shifts aim to reduce regulatory and tax-related complications.

One of the notable issues raised by Sawrikar involves withholding taxes applied to payments made to overseas service providers like law firms and research vendors. These costs impact the funds even though the capital originates from foreign investors and is deployed outside India.

Another factor influencing the decision is the minimum investment sizes required. Currently, funds managed in GIFT City demand a minimum ticket size of $150,000 per investor, which is quite high given the Indian Liberalised Remittance Scheme (LRS) limit of $250,000 annually for individual Indian investors. In contrast, ADGM offers a lower threshold of $55,000, enabling a broader investor base and potentially increasing capital inflows.

Sawrikar also noted distribution challenges. Non-resident investors must provide their PAN details, and the fund cannot accept investments from resident Indians without losing its specified fund status. Mixing resident and non-resident investors triggers taxation at the fund level, creating a significant barrier. This restriction has prevented one of the funds from attracting new investors over the past 15 months.

The firm applied for a Singapore license in June and anticipates receiving its ADGM license shortly. A previously planned venture capital fund intended for GIFT City will instead be domiciled in Mauritius, reflecting the company’s ongoing adjustments to its global fund distribution strategy.

Legal expert Raheel Patel from Gandhi Law Associates highlighted the challenges of operating within GIFT City’s regulatory framework. He explained, "The difficulty lies less in the benefits than in the conditions attached to them. A fund managed from GIFT City has to keep meeting prescribed tests on its investor base, concentration of holdings, resident participation, and corpus to stay within the safe harbour, and a new unit cannot be carved out of an existing Indian business." Patel added that these tests require continuous monitoring, with any breach resulting in significant tax consequences.

In comparison, ADGM is recognized for offering a simpler regulatory environment. "For a fund house weighing incentive against certainty, that simplicity can tip the balance," Patel said.

As of June 2026, GIFT City hosted around 235 Fund Management Entities (FMEs) overseeing more than 400 schemes. The total commitments from non-retail fund management activities stood near $45 billion, underscoring the center’s growing importance in India’s financial ecosystem. However, the challenges experienced by Artha Bharat illustrate the hurdles some fund managers face in navigating the complex tax and compliance landscape in India’s IFSC, prompting strategic shifts to more straightforward jurisdictions like ADGM.