GIFT Deep-Dive

November 2023

GIFT – Transfer Pricing

Background: Amongst the various Income-tax facets qua a unit in IFSC (GIFT), one of the critical aspects is the compliance of S. 80A viz – a – viz S. 80LA of the IT Act and, for those purposes, determining the open market price or determining the ALP.

The origin of transfer pricing or ALP lies on the premise that MNE can easily shift profits to NIL/low tax jurisdiction (say units in IFSC (GIFT)) and thereby, erode the profit base in another jurisdiction. Similarly, when profit linked deductions are available for units located in SEZs or for manufacturing of special products, there may be temptation to overstate the profits of such units and thus, there are provision like S. 80IA(8) and S. 80IA(10) of the IT Act to for striking the balance and to ensure that only ordinary profits are generated by eligible units.  

Applicability of Transfer Pricing

Drawing the clue from above and considering, inter alia, the income of a Unit in IFSC (GIFT) enjoys 100% deduction of income u/s. 80LA of the IT Act, S. 80A(6) of the IT Act is relevant. The section provides that notwithstanding anything contrary, inter alia, for the purpose of computing eligible profits for deduction in Part C of Chapter VIA - C (which includes S. 80LA), any transfer of goods or services (i.e. sold/acquired/supplied), by a unit eligible for such deduction, to any other business carried by the same assessee (and vice versa) – (i.e. internal transfer) should be carried out at ‘market price ’ i.e. either open market price or at ALP.

Moving forward, SDT provisions of S. 92BA of the IT Act too are relevant. As per this provision, a transaction is considered as an SDT if the following conditions are satisfied:

∞ It is a transaction as defined in S. 92F(v);

∞ It is not an international transaction as defined in S. 92B;

∞ Inter-alia, any transaction referred in S. 80A;

∞ The aggregate of such transactions exceeds Rs. 20 crores.

Accordingly, in light of S. 80A(6) read with S. 80LA, transactions carried out by units of GIFT (other than international transactions) duly qualify as SDTs under the provisions of the IT Act. (At this stage, it is noteworthy that unlike S. 80IA, S. 80LA does not have analogous provisions for computation of ALP. At the same time, S. 80LA does not make any specific reference to S. 92BA of the IT Act. Yet, SDT is applicable by virtue of S. 80A(6).

Further, if a unit of GIFT has entered any international transactions (i.e., as per S. 92B – transactions between two or more associated enterprise, either or both of whom being non-residents) then provisions of Chapter X (i.e., S. 92 to 92F) of the IT Act shall apply and transactions has to be benchmarked at ALP.

For example, if a non-resident "A Bank" of Singapore has branches in Rest of India and GIFT, and its head office is in Singapore (HQ), then transactions between these entities would be considered "international transactions" because the branches are deriving their status (i.e., Non-Resident) from the HQ. Consequently, transfer pricing provisions would apply. Similarly, transactions between "B Bank" of Indian HQ and its branches in GIFT and outside India would be considered "domestic" as they would be between "residents" and as such, the SDT provisions would be applicable.

Computation of ALP in case of International Transaction and SDT

S. 92C of the IT Act categorically provides for computation methods for determining ALP i.e., Comparable Uncontrolled Price Method Resale Price Method, Cost Plus Method, Profit Split Method, Transactional Net Margin Method, Other Method. Out of these methods, most appropriate method is selected and along with necessary adjustments, these methods are applied. These methods are either profit based, or price based. Unlike ‘market value’, which only deals with price fetched in open market (comparable uncontrolled method), these methods also provide other factors such as net margin method, etc. Accordingly, where access to comparable data for benchmarking transactions within GIFT might be intricate and limited due to its distinct nature, say for example complex instruments like derivates, hedging or structured products, potentially impacting transfer pricing analysis, it would be possible to determine ALP based on various methods and not just only by comparable. Once the transactions are considered as SDT, for the purpose of ‘market value’ under S. 80A, as per clause (iii) to Explanation to s. 80A (6), ALP as defined S. 92F(ii) viz-a-viz 92C of the IT Act to be considered.

Further, for above mentioned computation and compliance, meticulous documentation to substantiate transfer pricing arrangements are required. Just like other entities operating within India, Units in GIFT are also required to maintain comprehensive documentation providing detailed information on the analysis, methodologies, and rationale. This is covered by S. 92CD read with specific rules under the IT Act.

In addition, as per S. 92E requires persons entering into International Transaction or SDT during previous year obtain chartered accountant certification and furnish the same on specified date – i.e., Form 3CEB. 


GIFT’s emergence as a financial hub in India presents its own opportunities and challenges with SDT and Transfer Pricing. As businesses navigate the complexities of operating within the unique ecosystem of GIFT, adherence to market price viz-a-viz ALP principles, proactive robust - comprehensive documentation, and compliance remains paramount. Therefore, this underscores the need for MNEs operating within GIFT to proactively adopt, strategically manage and effectively comply with SDT and Transfer Pricing Provisions rather than subsequent postmortem of the transactions. Further, considering the growth trajectory of the GIFT, the government or regulatory bodies may further consider tailoring certain aspects of SDT and Transfer Pricing provisions to accommodate unique nature of transactions carried out at GIFT.