Gujarat International Finance Tec-City – Global Financial Hub

Gandhinagar, Gujarat’s capital became a planned city just like Chandigarh. The city is all set to become the next Singapore. The concept took shape in 2009 and foundation stone was laid in 2012. Gujarat International Finance Tec(GIFT) is India’s first business district and has an International Finance Service Centre and special economic zone for domestic and international finance services. 

Attempts are being made to capture business similar to mega financial service hubs like Singapore and London. To make it accommodative for foreign nationals it is going through a lot of planning. But to achieve its potential, GIFT needs to get completed and also become fully operational as it is still under progress.

What are the advantages that GIFT offers?

GIFT is considered to be an offshore jurisdiction freeing businesses from local laws and other regulations.  In order to get capital flows without any restrictions, a special set of laws has been drafted. The major benefits include,

  • 100% Tax Exemption
  • 9% Minimum Alternate Tax
  • GST and Customs duty for imports in SEZ exempt
  • 4% TDS on interest on overseas borrowing(such as long term bond or rupee denominated bond listed on an IFSC stock exchange)
  • Long term capital gains tax and stamp duty exempt
  • Alternative Investment Funds are allowed various tax incentives. AIF’s can invest through the FDI or Foreign Venture Capital Investor route. Before they could invest only through the Foreign Portfolio Investor.

Union Budget 2021 introduced specific tax incentives for units in the International Financial Services Centre:

  1. A world class fintech hub is under development in GIFT city. Fintech firms will get promoted and expand globally while generating employment opportunities.
  2. Debt financing of Real Estate Investment Trusts and Infrastructure Investment Trusts will be done by Foreign Portfolio Investment.
  3. Special tax incentives for relocating foreign funds in the IFSC and exemption of dividends on REIT and InvIT.
  4. The aircraft financing and leasing business is considered as a financial product under IFSCA( year 2020).  India being the world’s third largest domestic aviation market the benefits extended will cover- Capital gains exemption on income arising from aircraft leasing and aircraft lease rentals paid to foreign lessors are tax exempt.

GIFT City IFSC

International Financial Service Centre is a multi-service SEZ in Gift city. Banking sector, insurance sector and Capital Markets are permitted to set up an IFSC unit. It has an international exchange which includes trading across all asset classes like equities, currencies, commodities and fixed-income securities. It also has India’s first International Bullion Spot Exchange.

The IFSC Authority is vested with powers of the RBI,SEBI,IRDA, and PFRDA with respect to regulation of financial institutions, financial services and financial products.

The services rendered in GIFT City include the following:

  • Global Tax Management and cross border tax liability optimization which provides a business opportunity for financial intermediaries, accountants and law firms.
  • Asset management and global portfolio diversification are undertaken by pension funds, insurance companies and mutual funds.
  • Corporate treasury management operations both global and regional that involve fund-raising, liquidity investment and management and asset-liability matching.
  • Facilitating raising of funds for individuals, corporations and governments. 
  • Risk management operations such as insurance and reinsurance.
  • Merger and acquisition activities among trans-national corporations.

With effect from February 10th, 2021, the following ancillary services are also permissible:

  • Legal, Compliance and Secretarial.
  • Auditing, Accounting, Bookkeeping and Taxation Services
  • Professional Management Consulting Services
  • Administration, Assets Management Support Services and Trusteeship Services.
  • Any other services as approved by IFSCA from time to time. 

Due to several economic and fiscal advantages, GIFT City has drawn a lot of attention. 

Tax,Fiscal Incentives and Economic benefits available under SEZ Act 2005 for IFSC units:

  • Tax on Long term capital gains in certain cases-where the transaction takes place on a stock exchange situated in IFSC, the LTCG shall be exempt though securities transaction tax is not paid. Transfer of equity shares/units of equity oriented funds/ units of business trust on which STT is not paid are exempt. (Section 112A of the I-T Act)
  • Tax on short term capital gains in certain cases-As per section 111A of the Income Tax Act, the STCG shall be taxable at the rate of 15% even though no STT is paid. The consideration for such a transaction shall be paid/payable in foreighn currency.
  • Tax on distributed profits of domestic companies: The units located in IFSC get tax concession to the extent of 20.555% on dividends distributed/declared/paid. As DDT is not available for set off against the normal income tax payable by a company, it becomes an additional cost to the company. The provisions of Section 115-O shall not apply to units located in IFSC.
  • Offshore Banking Units and International Financial Services Centre get a 100% deduction for the first five consecutive years beginning from the year in which permission from the respective authority was obtained. And 50% deduction for the next five consecutive financial years. 
  • Where the tax on the total income is less than 9% of the Book Profit as per section 115JB then the company shall instead of paying tax as per the normal provision, pay tax @ 9% of the Book Profit.
  • For an assessee other than a company located in IFSC, the provisions of section 115JC shall be- instead of paying tax as per the normal provision, pay tax @ 9% of the Adjusted Total Income where the tax on the total income is less than 9% of the Adjusted total income.
  • Under section 47, any transfer of Capital Asset being a bond or Global Depository Receipt, Rupee denominated bond of an Indian company, Derivative made by a non-resident on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreighn currency is not considered as a transfer and hence not liable to capital gain tax.
  • Apart from SEZ related incentives as per the SEZ Act,2005 there is an exemption from the securities transaction tax leviable under section 98 of the Finance(No.2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the international Financial Services Centre.

Apart from this, many Indirect Tax incentives too have been announced in Union Budget 2016. Recently GIFT has joined hands with BRTSIF to speed up fintech innovation through a joint venture among BSE Institute Mumbai, Ryerson University and Simon Fraser University, Canada. Fintech and IFSC have immense potential and both are emerging fields in India. 

There are 148 companies already registered in SEZ. Once operational, GIFT city will accommodate 11000 people for work. The GIFT Project is expected to be completed by 2024. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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