A Must-Have Guide to Tax Compliance for GIFT City

GIFT City, India's first International Financial Services Centre (IFSC), aims to be a global financial hub.

It offers various tax benefits and a business-friendly regulatory environment to attract foreign and domestic companies. This guide explores the tax regime for entities operating in GIFT City.

What is GIFT City?

Gujarat International Finance Tec-City (GIFT City) is a multi-service Special Economic Zone (SEZ) established in Gujarat, India. It houses an International Financial Services Centre (IFSC) that facilitates financial services transactions between international counterparties.

Tax Benefits for Companies in GIFT City, Gandhinagar

Key Tax Benefits:

• Income Tax:
  • Units in GIFT City can avail a 100% tax holiday on profits for 10 out of 15 years under Section 80LA of the Income Tax Act, 1961.
  • Minimum Alternative Tax (MAT) applied at a reduced rate of 9% as per Section 115JB of the Income Tax Act, 1961.
  • Exemptions on capital gains tax for specific securities traded on a recognized stock exchange within GIFT City, subject to conditions outlined in Section 47(vii) (ab) of the Income Tax Act, 1961 and relevant notifications (e.g., notification dated March 5, 2020).
  • Special tax regime for non-resident investors with benefits like concessional withholding tax rates and relaxed compliance requirements (refer to relevant sections of the Income Tax Act, 1961 for details on these specific benefits).
• Goods and Services Tax (GST):
  • Units in GIFT City are exempt from GST on services received domestically and provided to other IFSC/SEZ units or offshore clients (refer to relevant provisions within the GST Act, 2017).
  • Investors involved in transactions on IFSC exchanges are not liable for GST (refer to relevant provisions within the GST Act, 2017).
• Other Tax and Duty Benefits:
  • Units in GIFT City may be eligible for state subsidies on lease rentals, employee provident fund contributions, and electricity charges (refer to specific state government policies for details).
  • Investors benefit from exemptions on Security Transaction Tax (STT), Commodity Transaction Tax (CTT), and stamp duty for transactions carried out on IFSC exchanges (refer to relevant acts like the Securities Contracts (Regulation) Act, 1956, the Forward Contracts (Regulation) Act, 1952, and the Indian Stamp Act, 1889 for details on these exemptions).

Key Considerations for Tax Compliance

• Record Keeping
  • Maintain detailed records of all financial transactions, including income, expenses, investments, and tax payments.
• Tax Filing
  • File income tax returns and other tax filings as per applicable regulations.
• Transfer Pricing
  • If you have related party transactions with entities outside GIFT City, ensure adherence to arm's length pricing principles.
• SEZ Regulations
  • Comply with SEZ regulations regarding import/export of goods and services.

CBDT Circular Streamlines Tax Compliance for IFSC Units

The Central Board of Direct Taxes (CBDT) recently issued a circular introducing significant relaxations in tax compliance for entities operating within the International Financial Services Centre (IFSC).

This move, effective from April 1, 2024, exempts specific payments made to IFSC units from Tax Deducted at Source (TDS) provisions. Let's delve into the key aspects of this circular:

Exemption Scope:

• The TDS exemption applies to payments such as professional/referral fees, brokerage income, interest on External Commercial Borrowings (ECBs)/loans, insurance commission, dividends, and credit rating fees.

Benefiting Sectors:

• The exemption encompasses a wide range of sectors within the IFSC, including FinTech, banking, fund management entities, finance companies, credit rating agencies, insurance intermediaries, and investment banking.

Long-Term Stability:

• The CBDT circular offers a prolonged period of tax relief. These relaxations will be applicable for ten consecutive assessment years, providing long-term certainty and fostering a stable business environment for IFSC units.

Simplified Compliance:

• To avail the TDS exemption, IFSC units need to furnish Form No. 1 to the payer. Upon receiving this form, the payer is not obligated to deduct TDS. However, they are required to include details of these payments in their TDS statement.

Impact on IFSC:

The CBDT circular represents a positive step towards establishing the IFSC as a premier global investment hub. It reduces the tax compliance burden for businesses operating within GIFT City, making it a more attractive proposition for investors, service providers, and businesses alike.

The broad scope of exempt payment categories fosters a conducive environment for financial activities and simplifies the process of conducting business within the IFSC.

Disclaimer

This guide is intended for general information purposes only and does not constitute professional tax advice. Please consult with a qualified tax advisor for specific guidance applicable to your situation.