Union Finance Minister Nirmala Sitharaman announced several of the benefits for the Gujarat International Finance Tec-City (GIFT) on Tuesday, including the ability to host world-class foreign universities, an international arbitration centre, permission to handle “climate finance,” and income tax exemptions for many other activities.
Proposing amendments to the Income Tax Act, Sitharaman, said that income of a non-resident from “offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions”.
According to a GIFT City official, the income tax exemptions will not only aid in the start-up of ship leasing activities at the International Financial Services Centre (IFSC) in Gujarat, but will also provide tax relief to international banking units and global portfolio managers based in GIFT City.
“With the proposed changes in the budget, a global portfolio manager can freely operate from GIFT IFSC and manage income of an investor in Singapore, looking to invest in the markets in the United States. Under the present law, any income accrued in India becomes taxable,” the official added.
Sitharaman stated in her budget speech that world-class foreign universities and institutions will be allowed to offer courses in Financial Management, FinTech, Science, Technology, Engineering, and Mathematics in GIFT City free of domestic regulations.
“Establishing world class foreign universities/institutions free from domestic regulations, under the aegis of IFSCA is a significant step towards developing a thriving ecosystem of skilled human resource in GIFT-IFSC. It would bring innovative pedagogy, global expertise and cutting-edge know-how in financial management, fintech, quantum computing, new age technologies, etc.,” said Injeti Srinivas, chairman, IFSCA.
The budget also allows “climate finance” funds to be routed to India through IFSC in GIFT City. The finance minister also spoke about setting up of an International Arbitration Centre in GIFT City for timely settlement of disputes under international jurisprudence.
The arbitration centre will be different from the maritime arbitration centre that is also being set up in GIFT City.
“The International Arbitration Centre (IAC) in GIFT IFSC is extremely significant as a robust alternative dispute resolution mechanism lies at the heart of any successful global financial centre,” Srinivas said.
“The proposed IAC will not only boost foreign investor confidence to set up business in GIFT IFSC but also place GIFT IFSC on par with other competing jurisdictions. Our endeavour will be to develop an international arbitration centre of global standards that provides cost effective and time-bound dispute resolution,” he added.
Foreign investors had been comparing GIFT City with the Dubai International Financial Centre (DIFC) where the additional attraction was the DIFC Court.
“Today’s announcement on facilitating sustainable and climate finance into India through the GIFT IFSC could not have come at a more opportune time as India has committed itself to a net zero emission by 2070,” he added.
Tapan Ray, MD & Group CEO, GIFT City, said, “Today’s announcements reiterate the commitment of the Ministry of Finance towards energising the regulatory ecosystem at GIFT IFSC which will have a multiplier effect in the country’s economic growth.”
Ray opined that the “setting up of world class universities without any domestic regulation will facilitate skilled manpower in the financial services space”.
“International arbitration centre will strengthen the dispute resolution mechanism at GIFT IFSC & enhance ease of doing business at GIFT. The exemption of income tax would promote various business activities such as ship leasing & financing,” he added.
This is the sixth year in a row that the Union budget has included subsidies for GIFT City, which is now a wholly-owned project of the Government of Gujarat.
The project, which was conceived in 2007, received a major boost only in 2015-’16, when then-finance minister Arun Jaitley announced that regulations would be put in place to kick-start India’s first IFSC.
In order to attract investments, the 2016-17 budget waived or abolished the Security Transaction Tax, Commodity Transaction Tax, Dividend Distribution Tax, and Long Term Capital Gains.
The very next year, a unified regulator for IFSC was announced and in 2018-19, the tax holiday was extended and the announcement for beginning of aircraft leasing was made.
The budget presented on Tuesday also listed out the status of implementation of budgetary announcements made last year.
IFSCA has approved three entities under the Regulatory Sandbox Framework, according to the Ministry of Economic Affairs’ budget document, including NSE IFSC for trading in select US stocks in the form of depository receipts.
IFSCA has also agreed to formalise a Memorandum of Understanding (MoU) with T-Hub (Hyderabad) and Fin-Blue Hub (Chennai) for the purpose of promoting start-ups, according to the statement.