Gujarat International Finance Tec-City
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Gujarat International Finance Tec-City

GIFT City is a business district in the state of Gujarat, India. It is created with an object to offer competitive edge to Financial services and Technology related activities. Recognizing the growing significance of international financial services center (IFSC), the Global Financial Centers Index, London Report (March 2022) put IFSC in GIFT City at the top, among 15 centers globally.

Why Gujarat?
The State of Gujarat has emerged as the fastest growing region in the country with an annual Gross State Domestic Product of over 14% per annum over the past 10 years. To create large employment in the field of services industry in Gujarat is also one among the main reasons for setting up GIFT City. recognizing the potential of the State as a Centre for the financial services industry, The GIFT Project has been formulated as mega project to realize this vision of setting up an IFSC in India.

Which Businesses can be established in GIFT?
Target business segments which can be set up in GIFT city are Offshore banking, Capital markets, Offshore asset management, Offshore insurance, IT services, BPO and KPOs and ancillary services such as Legal, Accounting & Audit, Research & Analytics etc., Compliance, Recruitment, Risk Management.

Tax incentives in GIFT-IFSC-
The city’s international financial services center (IFSC) in GIFT was declared a Special Economic zone to attract foreign and domestic investment in 2015. Here are some of the tax benefits for the companies falling under international financial services center: –

  • Alternate Minimum Tax (AMT) and Minimum Alternate Tax (MAT) is not applicable to companies in IFSC who have opted for new tax regime.
  • There is no GST on services received by these companies, provided to IFSC SEZ units or offshore clients.
  • Tax holiday for 10 consecutive years out of block of 15 years in respect of income from business carried on in IFSC.
  • Security Transaction Tax (STT), Commodity Transaction Tax (CTT), Stamp Duty in respect of transactions carried out on IFSC exchanges are not levied.

Impact of Budget 2023 on GIFT- IFSC: –

  • The power under the SEZ Act 2005 will be delegated to international financial services center authority (IFSCA) – IFSC is currently regulated by both SEZ and IFSCA authorities. powers of the SEZ Authorities with respect to SEZ units in the IFSC zone shall be delegated to IFSCA to ensure that there is only single regulator.
  • Single window IT system to be set-up for registration from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI.
  • IFSC banking units of foreign bank will be permitted to undertake acquisition financing.
  • EXIM Bank Subsidiary to be established in IFSC to promote trade re-financing, this will provide a substantial boost to the IFSC ecosystem and the cross-border trade financing.
  • Offshore derivative instruments will be recognized as valid contracts. The Budget proposes to amend section 18A of SCRA to provide that ODI contracts issued by an FPI in the IFSC regulated by the IFSCA shall also be legal and valid contracts. This amendment may potentially allow IBUs to issue ODIs with permissible Indian securities as the underlying asset subject to clarifications from the IFSCA.
  • Countries which are looking for digital continuity solutions, will be facilitated in setting up of their data embassies in GIFT IFSC.

TAX Amendment in the Budget 2023-

  • Relocation of Fund- When there is relocation of funds to IFSC, it attracts certain tax exemptions if the relocation is done before 31.03.2023. This date is proposed to be extended to 31.03.2025.
  • Any distributed income from the offshore derivative instruments entered into with an offshore banking unit is also proposed to be exempted subject to certain conditions, presently, the exemption is provided only on the transfer of ODIs and not on the distribution of income (interest/ dividend) to the non-resident ODI holders, hence such distributed income is taxed twice in India i.e. first when received by the IBU and second, when the same income is distributed to non-resident ODI holders. In order to remove the double taxation, it is proposed to amend clause (4E) of section 10 of the IT Act 1961, to also provide exemption to any income distributed on the ODI, entered into with an IBU, which fulfils prescribed conditions.