GIFT CITY (India’s first International Financial Services Centre (IFSC)), Ahmedabad (Gujarat)- Income Tax benefits:
GIFT City offers significant income tax benefits, including a 100% income tax exemption for 10 consecutive years out of a 15-year period for eligible businesses.
Other benefits include a reduced Minimum Alternate Tax (MAT) rate of 9%, zero TDS (Tax Deducted at Source) on certain payments to IFSC units, and concessional tax rates on dividends for investments in GIFT City. These benefits are provided under Section 80LA of the Income-tax Act, 1961, and are designed to make GIFT City a competitive global financial hub.
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Introduction:
1. Gujarat International Finance Tec-City, popularly known as Gift City, is India’s first International Financial Services Centre (IFSC).
2. It is home to banks, financial institutions, and other global businesses, offering them a conducive environment in which to set up their shop and run their operations smoothly.
Investment opportunities for NRIs:
1. Offshore banking and deposits: Banks and financial institutions established in the Gift City offer offshore banking deposits and foreign currency term deposits.
2. Global equities and bonds: Through the Gift City IFSC exchange, NRIs and OCIs can get access to global equities and bonds.
3. Alternative Investment Funds (AIF):AIFs set up in the Gift City offer exposure to several asset classes, including equities, debt securities, private equity, real estate and venture capital investments.
4. Real Estate Investment Trust (REIT):The Gift City IFSC exchange has listed REITs, which gives easy access to the Indian real estate market at a low cost.
Tax incentives available to NRIs:
1. Concessional rates of tax on dividend income: The TDS deducted on dividend income on Gift City investments will be lower than the TDS deducted in case of investments outside Gift City.
2. Tax-free interest income: Interest income earned from money lent out to IFSC units (foreign currency denominated deposits) is completely tax-free.
3. Tax benefits on long-term bonds:Rupee-denominated bonds that are listed on the IFSC exchange enjoy lower tax rates. Bonds listed before July 1, 2023, have a 4% tax rate, and bonds listed after this date have a 9% tax rate.
4. Tax benefits on listed securities: If an NRI or a Category III AIF located in IFSC transfers a specified listed asset, it is not considered a taxable transfer, and the gains are not taxed in India. (Section 47(viiab))
5. Income earned on derivatives is tax-free: Income earned from non-deliverable forward contracts, and over the counter derivates entered with a banking unit are exempt from tax.
6. Income earned on financial securities managed by fund managers: Income earned by an NRI from financial instruments managed by a fund manager on behalf of the NRI in an account with a banking unit is exempt from tax as long as accrues outside India and is not considered to arise in India.
7. No GST: No GST will be charged on transactions done in the Gift City.
8. No additional taxes: No securities transaction tax, commodities transaction tax, and stamp duty for transactions done on IFSC exchanges.
Grey Areas
1. GAAR / POEM: Families need to be careful about place of effective management when structuring through IFSC vs. overseas entities — though IFSC solves many of the foreign POEM risks.
2. Family Trusts: Singapore allow some tax benefits for trusts/foundations for family offices. In GIFT City, trust regulations are evolving — no clear tax treatment yet for IFSC-based family trusts.
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