Background
GIFT is India’s first IFSC under Special
Economic Zone Act, 2005 (“SEZ Act
2005”). It is being developed as a global
financial services hub. GIFT IFSC is a Multi
Services SEZ which commenced its
business in April 2015. It is in Gandhinagar,
capital of Gujarat State and is easily
accessible from Ahmedabad City. Being in
SEZ, GIFT is demarcated in GIFT SEZ and
Domestic Tariff Area (“DTA”). The majority
of the units in GIFT are in IFSC which is
under SEZ.
On direct tax front, the GOI has been giving impetus year on year to units set up in GIFT IFSC by bringing amendments in the IT Act. These are benefits in the form of tax exemptions to income from certain entities in the financial sectors, tax holiday for a ten-year period, lower tax rate on certain income arising from businesses set up in GIFT, capital gains exemption, etc. Primarily the focus is to incentivize financial sector activities in GIFT and to encourage non-resident investors and business enterprises to be part of these activities.
On regulatory front, SEBI, RBI, Insurance Regulatory and Development Authority (“IRDAI”) has issued regulations, guidelines, etc. for Capital Markets Intermediaries, Banks and Insurance companies/Insurance Brokers respectively. With the passing of International Financial Services Centres Authority Act, 2019, there is unified regulatory authority for the units in IFSC.
Income exemption provisions [S. 10]
Concessional Tax Rates [S. 10]
Other provisions applicable to a unit in an IFSC
Conclusion
Over the year, on direct tax front, there has
been a consistent and impressive
expansion in the scope of exemptions,
benefits concessions to the units operating
from an IFSC. This would incentivize the
eligible overseas and domestic funds to set
up shops in an IFSC. Since IFSC is at
nascent stage, the Government could
consider extending the sunset date for
commencement of business to a
reasonably later date, at present the latest
date is March 31, 2026 for S. 10(4H). This
could give some more time to the new
entities to set up compliance mechanism in
line with the law and rules thereunder,
which are quite onerous. Another positive
step could be to have dialogues with the stakeholders and after considering the
industry inputs, issue FAQs to explain the
provisions and rules, initially in draft form
and in final form after inviting public
comments. Also, terms like “offshore
derivative instruments”, “non-deliverable
contracts”, etc, could be specifically
defined to have uniform meaning adoption.
Most importantly, several financial
products and business models which would
come under the IFSC, are new age and are
still evolving. Hence, regular orientation on
these aspects and best international
practices, to the assessment wings of
Income Tax Department would be helpful
in making meaningful scrutiny
assessments.
[1] Rule 21AIA
[2] Not yet prescribed
[3] Defined u/s. 115TCA under Chapter XII-EA of the IT Act
[4] See rule 21AI and 21AJA for (a) and (b) above, respectively
[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-
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[8] See rule 21AJ and Form 10-IH
[9] See rule 21AJA and Form 10-IK