Background
GIFT is India’s first IFSC under Special\r\nEconomic Zone Act, 2005 (“SEZ Act\r\n2005”). It is being developed as a global\r\nfinancial services hub. GIFT IFSC is a Multi\r\nServices SEZ which commenced its\r\nbusiness in April 2015. It is in Gandhinagar,\r\ncapital of Gujarat State and is easily\r\naccessible from Ahmedabad City. Being in\r\nSEZ, GIFT is demarcated in GIFT SEZ and\r\nDomestic Tariff Area (“DTA”). The majority\r\nof the units in GIFT are in IFSC which is\r\nunder SEZ.
On direct tax front, the GOI has been giving\r\nimpetus year on year to units set up in GIFT\r\nIFSC by bringing amendments in the IT\r\nAct. These are benefits in the form of tax\r\nexemptions to income from certain entities\r\nin the financial sectors, tax holiday for a\r\nten-year period, lower tax rate on certain\r\nincome arising from businesses set up in\r\nGIFT, capital gains exemption, etc.\r\nPrimarily the focus is to incentivize financial\r\nsector activities in GIFT and to encourage\r\nnon-resident investors and business\r\nenterprises to be part of these activities.\r\n
On regulatory front, SEBI, RBI, Insurance\r\nRegulatory and Development Authority\r\n(“IRDAI”) has issued regulations,\r\nguidelines, etc. for Capital Markets\r\nIntermediaries, Banks and Insurance\r\ncompanies/Insurance Brokers respectively. With the passing of\r\nInternational Financial Services Centres\r\nAuthority Act, 2019, there is unified\r\nregulatory authority for the units in IFSC.
Income exemption provisions [S. 10]\r\n
Concessional Tax Rates [S. 10]
Other provisions applicable to a unit in an IFSC
Conclusion
Over the year, on direct tax front, there has\r\nbeen a consistent and impressive\r\nexpansion in the scope of exemptions,\r\nbenefits concessions to the units operating\r\nfrom an IFSC. This would incentivize the\r\neligible overseas and domestic funds to set\r\nup shops in an IFSC. Since IFSC is at\r\nnascent stage, the Government could\r\nconsider extending the sunset date for\r\ncommencement of business to a\r\nreasonably later date, at present the latest\r\ndate is March 31, 2026 for S. 10(4H). This\r\ncould give some more time to the new\r\nentities to set up compliance mechanism in\r\nline with the law and rules thereunder,\r\nwhich are quite onerous. Another positive\r\nstep could be to have dialogues with the stakeholders and after considering the\r\nindustry inputs, issue FAQs to explain the\r\nprovisions and rules, initially in draft form\r\nand in final form after inviting public\r\ncomments. Also, terms like “offshore\r\nderivative instruments”, “non-deliverable\r\ncontracts”, etc, could be specifically\r\ndefined to have uniform meaning adoption.\r\nMost importantly, several financial\r\nproducts and business models which would\r\ncome under the IFSC, are new age and are\r\nstill evolving. Hence, regular orientation on\r\nthese aspects and best international\r\npractices, to the assessment wings of\r\nIncome Tax Department would be helpful\r\nin making meaningful scrutiny\r\nassessments.
[1] Rule 21AIA\r\n
[2] Not yet prescribed
[3] Defined u/s. 115TCA under Chapter XII-EA of the IT Act\r\n
[4] See rule 21AI and 21AJA for (a) and (b) above, respectively\r\n
[5] Please see Our Comments
[6] Notification S.O.986 (E) dated March 5, 2020
[7] FA, 2023 exempts a Specified Fund from including surcharge in computation of advance tax liability for FY 2023-\r\n24\r\n
[8] See rule 21AJ and Form 10-IH\r\n
[9] See rule 21AJA and Form 10-IK