A Smart Investor's Roadmap to Financial Benefits of GIFT City

GIFT City, India's International Financial Services Centre (IFSC), is rapidly emerging as a powerhouse in the global financial landscape.

Designed to attract domestic and international investments alike, GIFT City offers a plethora of opportunities and advantages for businesses and investors.

In this blog, we delve into the various facets of GIFT City, exploring its tax incentives, operational benefits, investment opportunities, advantages, and its promising future.

Tax and Regulatory Incentives for Units and Investors in GIFT City IFSC

Direct Tax Incentives for Units in GIFT City IFSC

• Tax Exemption: Units in GIFT City IFSC enjoy a remarkable 100% tax exemption for 10 consecutive years out of 15 years.
  
• Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT): Companies and entities established in GIFT City IFSC  are subject to MAT/AMT at 9% of book profits. However, companies opting for the new tax regime are exempt from MAT.
  
• Taxation of Dividend Income: Dividend income distributed by companies in GIFT City IFSC is taxed in the hands of the shareholders since April 1, 2020.
  
• Concessional Tax Rate for Non-residents: A dividend received by non-residents from a GIFT City IFSC unit is taxable at a concessional rate of 10% plus applicable surcharge and cess.
  
• Surcharge and Cess Exemption: Certain incomes earned by specified funds in GIFT City IFSC are exempt from surcharge and health and education cess.

Tax Incentives for Investors

• Tax Exemption on Interest Income: Interest income paid to non-residents on monies lent to GIFT City IFSC units is not taxable.
  
• Taxation of Bonds: Interest on Long Term Bonds and Rupee Denominated Bonds listed on recognized stock exchanges in GIFT City IFSC is taxable at a lower rate of 4% for issuances before July 1, 2023, and at a rate of 9% for issuances on or after July 1, 2023.
  
• Capital Gains Exemption: Transfer of specified securities listed on GIFT City IFSC exchanges by non-residents or Category III AIFs located in GIFT City IFSC are not treated as transfers, and gains accruing are not chargeable to tax in India.
  
• Exemption for Offshore Derivative Instruments: Income received by non-residents from certain derivative instruments entered with an Offshore Banking Unit of a GIFT City IFSC is exempt from tax.
  
• Exemption for Portfolio Management: Income received by non-residents from a portfolio of securities managed by any portfolio manager on behalf of such non-resident in an account maintained with an Offshore Banking Unit of a GIFT City IFSC is exempt from tax.

Indirect Tax Incentives for Units and Investors

• GST Exemption: No GST is applicable on services received by units in IFSC, while GST is applicable on services provided to the Domestic Tariff Area (DTA).
  
• GST Exemption for Transactions: No GST is applicable on transactions carried out in IFSC exchanges.

Other Tax Incentives

• State Subsidies for Units in IFSC: Units in GIFT City IFSC are eligible for state subsidies covering lease rental, PF contribution, and electricity charges.
  
• Exemption from Transaction Taxes for Investors: Investors enjoy exemption from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and stamp duty for transactions carried out on GIFT City IFSC exchanges.

Operational Benefits in GIFT City IFSC

Exemption from Currency Control Regulations for IFSC Units

Units established in IFSC benefit from exemption from currency control regulations, are treated as non-resident entities under the SEZ Act, and enjoy privileges concerning exchange control provisions under FEMA.

Liberalized Currency Control Regime for Indian Residents

The RBI permits sponsor contributions from Indian parties in Alternative Investment Funds (AIFs) established overseas, including those in IFSC, facilitating investment activities of Indian residents.

SEZ Incentives for GIFT City Units

SEZ units within GIFT City offer attractive incentives like duty-free imports, exemption of excise duty, refund of sales tax/VAT, exemption/refund of service tax, exemption from central service tax, exemption of purchase tax, and exemptions on various transactions and duties.

Domestic Sales – Subject to NFE Conditions

• Income Tax Exemption: SEZ units are exempted from income tax for 100% for 5 years, followed by 50% for the next 5 years, and 50% of ploughed back export profit from the following 5 years.
  
• Exemption from Industrial Licensing Norms: SEZ units are exempted from industrial licensing norms.
  
• Foreign Direct Investment (FDI): SEZ units enjoy 100% FDI through the automatic route.
  
• Free Retention of Foreign Exchange Earnings: SEZ units are free to retain entire foreign exchange earnings.

Other Benefits of Investing in GIFT City IFSC

Customs Benefits in GIFT City IFSC

SEZ units within GIFT City enjoy benefits like duty-free imports, utilization of locally procured goods over a 5-year period, subcontracting production through units in Domestic Tariff Area (DTA) or other SEZs, and exemption from various duties under the Customs Act, 1962.

Banking / External Commercial Borrowings in GIFT City IFSC

SEZ units in GIFT City can bring in External Commercial Borrowings up to USD 500 million annually without maturity restrictions, deposit credit receipts up to 100% into the Exchange Earner’s Foreign Currency Account (EEFC), permit write-off of unrealized export bills, net off export receivables against import payments, bring in export proceeds without time limitations, and undertake hedging transactions in overseas commodity exchanges/markets.

Environmental Benefits in GIFT City IFSC

Simplified environment clearances are delegated to State Pollution Control Boards, and exemption from public hearings is granted for SEZ units where the SEZ as a whole has undergone public hearing.

Labor Benefits in GIFT City IFSC

Streamlined labor laws with unified authority for approvals granted to the Development Commissioner are provided for SEZ units.

How to Invest in GIFT City and GIFT City Investment Opportunities?

Traditional Investments in GIFT City IFSC

• Equities: Invest in Indian and Global Equities through GIFT City.
  
• Mutual Funds: Diversify your investments in a basket of assets like stocks, bonds, and commodities.
  
• Exchange Traded Funds (ETFs): Trade baskets of securities on a stock exchange with lower fees than mutual funds.
  
• Index Funds: Passively track market indexes for a low-cost investment.
  
• Bonds: Invest in Indian and Global Bonds through GIFT City.
  
• Currencies: Trade in various currencies through the forex market.
  
• Commodities: Invest in basic materials like gold, oil, or wheat through derivatives contracts or commodity ETFs.

Alternative Investment Products in GIFT City IFSC

• Unapproved Depository Receipts (UDRs): Invest in depository receipts for shares of foreign companies not listed on Indian stock exchanges.
  
• Alternate Investment Funds (AIFs): Explore investment opportunities in startups, private equity, hedge funds, etc.
  
• Structured Products: Customize investments with multiple assets like stocks, bonds, and derivatives.
  
• Derivative Products: Hedge or speculate with financial contracts based on underlying assets.
  
• Offshore Deposits: Diversify your portfolio with foreign currency accounts offered by banks in GIFT City.

Capitalizing on the Advantages of GIFT City IFSC

Strategic Location

Situated in Gujarat, India, GIFT City places itself strategically for connecting with major financial centers in Asia, Africa, and the Middle East.

Thriving Investment Market

GIFT City offers a diverse range of investment products and services, from equities and mutual funds to bonds and derivatives, providing ample opportunities for investors to grow their portfolios.

World-Class Infrastructure

Boasting state-of-the-art buildings, high-speed connectivity, and advanced security systems, GIFT City provides the infrastructure necessary for seamless financial operations.

Government Support

The Indian government staunchly backs the development of GIFT City, instilling confidence in investors and businesses alike, making it a stable and reliable investment destination.

Exploring Opportunities in GIFT City IFSC

Financial Services

Banks, insurance companies, and asset management firms can tap into the vast opportunities in GIFT City. The IFSC framework allows these institutions to offer a broader range of products and services, catering to both domestic and international clients.

FinTech Innovation

GIFT City fosters a thriving ecosystem for FinTech startups, with the IFSCA providing a regulatory sandbox for innovative FinTech solutions. This encourages growth and development in this dynamic sector, positioning GIFT City as a hub for financial innovation.

Global Business Expansion

Indian companies seeking to expand their global reach can utilize GIFT City as a springboard. By establishing a presence in GIFT City, companies can access international funding, manage foreign currency transactions, and connect with global investors, thus facilitating their global expansion strategies.

The Future of GIFT City

Evolving Regulatory Landscape

GIFT City's regulations are continuously evolving to adapt to the changing needs of the financial industry. The IFSCA actively introduces new regulations and frameworks to keep pace with global standards, ensuring a conducive environment for financial activities.

Growing Importance in Asia

GIFT City is poised to become a prominent financial hub in Asia, attracting investments and businesses from across the globe. Its strategic location, coupled with favorable regulations and infrastructure, positions it as a key player in the region's financial ecosystem.

Impact on the Indian Economy

The development of GIFT City is expected to contribute significantly to India's economic growth and integration with the global financial market.

By attracting investments, fostering innovation, and promoting international trade, GIFT City plays a crucial role in propelling India's financial future forward.

Parting Words 

In conclusion, GIFT City offers a compelling proposition for businesses and investors seeking a gateway to financial growth.

With its array of tax incentives, operational benefits, investment opportunities, world-class infrastructure, and government support, GIFT City is poised to shape India's economic landscape and emerge as a leading global financial center.

References

• GIFT Gujarat, Tax Incentives
  
• IFSCA, Foreign Exchange Management (International Financial Services Centre) Regulations, 2015
  
• RBI Circular, Reserve Bank of India Circular No. 12417
  
• India Code, Special Economic Zones Act

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