OVERVIEW:

• The Indian Budget presented on 23 July 2024 has brought forth a series of significant tax announcement aimed at bolstering the status of GIFT City as a premier global financial hub.

• These announcements introduce entended tax benefits, enhanced deductibility and new regimes designed to attract investment an simplified operations for entities within the GIFT City.

• Below are the key highlights of the tax related announcements impacting GIFT IFSC.

TAX EXEMPTIONS FOR RETAIL SCHEMES AND ETFs:

• Retail Scheme and Exchange Traded Funds (ETFs) operating in the IFSC will now benefit from tax exemptions. This aligns them with the tax treatment of specified funds.

• The amendment aims to provide tax parity, treating these funds like category III AIFs in GIFT City irrespective of their corporate structure

• Tax benefits: 

• Exemption on Income: Income from transferring specific securities listed on an IFSC exchange (like rupee-denominated bonds of Indian companies, derivatives, foreign currency-denominated bonds, equity shares) will be exempt.

• Transfer of Securities: Income from the transfer of securities (excluding shares in an Indian resident company) will be exempt.

• Non-Resident Securities: Securities issued by non-residents, not being a permanent establishment in India, will be exempt if income doesn’t accrue or arise in India.

• Securitisation Trusts: Income from securitisation trusts chargeable under “Profits and gains of business or profession” will be exempt.

CORE SETTLEMENT GUARANTEE:

• Section 10(23EE) of the ITA exempts certain income of Core Settlement Guarantee Funds if set up by SEBI-registered clearing corporations.

FINANCE COMPANIES (NBFCs) AMENDMENTS:

• Finance companies operating within the IFSC will be excluded from the applicability of Section 94B of the Income Tax Act.

• This section deals with the limitation on interest deductions for certain interest payments to associated enterprises, aimed at preventing base erosion and profit shifting.

SOURCE OF FUNDS SIMPLICATION FOR VCFs:

• Venture Capital Funds (VCFs) in the IFSC extending loans or other amounts will no longer need to explain the source of their funds.

• Previously, VCFs were required to disclose the source of funds when extending loans or other financial products.

SURCHARGE EXEMPTION:

• Surcharge will not apply to income-tax payable on income from securities by specified funds.

• These include certain categories of investment funds that meet specified criteria under the tax laws.

CONCLUSION:

• The proposed amendments aim to enhance the attractiveness of the IFSC by providing much-needed tax clarity and parity for retail investors.

• By including IFSC Retail Funds within the definition of “specified funds” and offering significant tax benefits, the Government addresses existing disparities and uncertainties.