What is GIFT City?

The Gujarat International Finance Tec (“GIFT City”) City SEZ is India’s first International Financial Services Centre (IFSC). IFSC is established under Special Economic Zone Act, 2005. It is a hub for global financial services and technology.

Why is IFSC set up?

• The IFSC is set up to bring back the financial services and transactions which are currently carried out outside India by overseas financial institutions or overseas branches or subsidiaries of Monetary Institutions.
• IFSC aims to provide easy access to global investors for establishing businesses in banking, insurance, capital market, and asset and fund management. 
• It will connect various local businesses, international investors, and technology leaders on a single platform.

Services rendered in GIFT city

• Fundraise for individuals, corporations, and governments.
• Pension funds, insurance companies, and mutual funds will perform asset management and global portfolio diversification services. 
• Global tax management and optimization of cross-border tax liability.
• Corporate treasury includes fundraisings, asset-liability matching, and risk management operations such as insurance and reinsurance.
• Merger and acquisition transactions among multinational corporations.

In GIFT City, you can 

• Set up your business unit for manufacturing, trading, and rendering services. 
• Provide warehouse facility for specified goods. 
• Carry on import-export of certain goods or services to boost the Indian economy.

Note: Export shall include the supply of goods or services by an EOU unit or STPI unit.

What are the tax benefits in GIFT city for IFSC units?

IFSC attracts various benefits from the tax perspective, which are as follows:

Benefits to IFSC units

Income Tax benefits 

• Tax exemptions:100% tax exemption on business income for 10 years out of 15 years. Additionally IFSC Unit can select any 10 years out of 15 years block. 
• Lower MAT rate:The rate of MAT / AMT will be 9% of book profits. Further, if the company or entity under IFSC opts for a new tax regime, then MAT is not applicable.
• No dividend distribution tax:Units located in IFSC are not required to pay tax on dividend distribution to shareholders (Applicable from 01 April 2020).

Goods and service tax benefits

• There shall be no GST on services 
• received by the IFSC units, or 
• provided to offshore clients, IFSC, or SEZ units.

However, if the services are provided to Domestic Tariff Area (DTA), then the companies under IFSC are liable to pay GST. 

Other taxes and duties

• Exemptions under the Gujarat State Industrial and IT policy: IFSC unit companies are eligible for state subsidies, including lease rental, PF contribution, and electricity charges.
• Custom duty: Exemption from customs duty for all goods imported into the SEZ used for authorized operations
• Duty drawback: Duty drawback is available on goods brought back. 
• Excise duty: Exemption from excise duty on domestic purchases to carry authorized operations.

Benefits to IFCS investors

Income tax benefits 

• No tax on Interest income: if non-residents lent money to the IFSC units, then there is any tax on such interest income received from the IFSC unit.  
• Lower withholding tax: Long Term Bonds and Rupee Denominated Bonds listed on IFSC exchanges are taxable at a lower rate of 4%.
• Transactions not regarded as transfer: Transfer of specified securities* by a non-resident is not treated as transfer. Consequently, the gain that arises on such transfer is not chargeable to under capital gain tax in India.

*Specified securities (listed on IFSC exchanges) include 

• Bonds, 
• Global Depository Receipts, 
• Foreign currency-denominated bond, 
• Rupee-denominated bond of an Indian company, 
• Derivatives, 
• Unit of a Mutual Fund, business trust, and alternative Investment Fund

Goods and service tax benefits 

• There shall be no GST on transactions carried out in IFSC exchanges. 

Other taxes and duties

• Complete waived off from the following taxes
• Security Transaction Tax (STT), 
• Commodity Transaction Tax (CTT), 
• Dividend distribution tax (DDT),
• Long term capital gain (LTCG)
• Stamp duty in respect of transactions of share brokers who establish their registered office in GIFT city. 

Conclusion

GIFT IFSC offers an entire ecosystem to fulfill the requirements of investors and market participants by attracting global players. The various tax benefits and other economic benefits will help in attracting global players and ultimately in the development of our country. Furthermore, the development of new-age skills in the Finance and tech sector will help in generating employment.