GIFT City is being developed as a global financial and IT Services hub, a first of its kind in India, designed to be at par or above with globally benchmarked financial centres. GIFT’s Master Plan facilitates Multi Services Special Economic Zone (SEZ) with International Financial Services Centre (IFSC) status, Domestic Finance Centre and the associated Social infrastructure. “GIFT SEZ Limited” has been formed by Gujarat International Finance Tec-City Company Limited (GIFTCL) for the development of Multi Services SEZ at Gandhinagar with the prime focus being the development of IFSC and allied activities in SEZ.
The purpose of setting up the GIFT City is to develop a world-class smart city that becomes a global financial hub with the development of an IFSC. GIFT City is a central business hub with state-of-the-art infrastructure and first of its kind operational smart city in India. GIFT City is home to domestic and international, financial services and IT/ ITES sectors.
It is the intention of the City to attract the offshore service provider/s who are employed by the Indian multinationals, Overseas Offices of the Indian Residents or their Branches and the International Players who has an appetite for such Services. Also in few cases International Regulator’s compliance will also be accepted. A complete treatment available to these service seekers will be established in Gift City under the legal and the regulatory framework.
Thus if one is engaged in the financial Sector then such a unit in the Gift City will also require approval under the regulator ’ s guideline as applicable in their case and if it is engaged in to information Technology Services then they will be subjected to SEZ regulations only.
To bolster activities in IFSC and to promote it as a global financial hub, additional measures have been introduced which should make the IFSC proposition further attractive.
2.1 Tax proposals
Amendment to Section 10 ( 4 E): Currently, exemption is provided to non- residents from income from transfer of non-deliverable forward contracts entered into with an offshore banking unit. It is now proposed to extend the exemption under the said clause to non-residents on transfer of offshore derivative instruments or over- the-counter derivatives entered into with an Offshore Banking Unit of an IFSC, referred to in subsection (1A) of section 80LA
Amendment to Section 10(4F): Similar to exemption from income from royalty or interest on account of aircraft leasing as currently available, it is now proposed to extend the exemption to income earned by a non-resident in the nature of royalty or interest on account of lease of ship from IFSC unit as referred to in sub- section (1A) of Section 80LA, if the unit has commenced its operations on or before the 31st March, 2024. It is also proposed to define “ship” to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.
Proposed insertion of new clause (4G) in Section 10 : This clause proposes to provide exemption to any income received by a non- resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any IFSC, referred to in subsection (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India
Sec 80 LA is the main provision according the benefits to the unit in Gift City, the tax exemption for 10 consecutive financial years out of 15 years as selected by the Unit Holder.
Amendment to Section 80LA(2)(d): In addition to the income arising from the transfer of an asset being an aircraft, income arising from transfer of ships which was leased by an IFSC unit is proposed to be exempted subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.
Amendment to the Explanation to clause (viib) of Section 56: Presently, specified fund means Category I or Category II AIF which is regulated under the SEBI (AIF) Regulations, 2012. With the setting up of the IFSCA, it is now proposed to provide that specified fund shall also include Category I or a Category II AIF which is regulated under the International Financial Services Centres Authority Act, 2019.
2.2 Other key announcements in FM’s speech during Budget 2022 presentation
World- class foreign universities and institutions will be allowed in the GIFT City to offer courses in Financial Management, Fin Tech, Science, Technology, Engineering and Mathematics free from domestic regulations, except those by IFSCA to facilitate availability of high- end human resources for financial services and technology. Presently, a large number of Indian students seek education abroad thereby utilizing precious foreign exchange. Availability of world class universities in GIFT City may instead help such students to access quality education from within India and also lead to the development of a large pool of qualified academicians imparting knowledge in India.
An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence. The centre could be on the lines of the Singapore International Arbitration Centre, or the London Commercial Arbitration Centre. Currently, a large number of arbitration cases involving Indian entities or businesses are adjudicated in Singapore, London or similar which could instead utilize the services of the proposed International Arbitration Centre. This development would also usher in world-class legal services in India and improve India’s image as provider of best-in-class arbitration services.
Services for global capital for sustainable & climate finance in the country will be facilitated in the GIFT City. This is going to provide further thrust for ‘Green Finance’ at the IFSC. Climate finance refers to local, national or transnational financing, drawn from public, private and alternative sources of financing, which seeks to support mitigation and adaptation actions that will address climate change. Major financial resources and large-scale investments are required to significantly reduce emissions. To address this need, the Budget announces the Government’s intention to facilitate the presence in IFSC of global players in ‘green’ projects and climate finance.
It is a herculean task to attract International Service Providers who are serving Indian Business Houses abroad. The task therefore requires modifications to the existing policy framework to adjust to the flexibility accorded by the overseas regime where International Service Providers are operating. It is also intended to allow Indian Business Houses in IT Sector and Financial Service Providers to operate in an Internationally flexible regime to provide them the level playing field. It is an effort first to attract all and one where Indian needs such services and then make that available to Indian Players.
In time to come the regulatory regime may be made flexible for each sector in a manner that International Service Provider has the same legal and regulatory regime as they are used to it in another competitive jurisdiction and in few sector even compliances to International regulator may be considered as sufficient to operate from Gift city.