IFSC GIFT City: Opening Up Possibilities for Financial Services

Why IFSC

IFSC provides an opportunity to global businesses to establish a variety of business verticals in Banking, Insurance, Fund/Asset Management, Capital Markets and Trading, IT Services and ITeS/BPO Services. The business units set up in IFSC in each of these segments have been given several tax and regulatory incentives by the Government of India.

A regulator for ease of doing business

Earlier various business segments in IFSC were governed by various regulators like Reserve Bank of India (RBI) for banking and capital market undertakings, Securities and Exchange Board of India (SEBI) for fund management and capital markets and Insurance and Regulatory Development Authority of India. (IRDAI) for insurance. Recognizing the need for coordination amongst all the regulators to ensure smooth business conduct in IFSC, Government of India has established a unified regulator i.e. International Financial Services Center Authority (ICC) under the IFSC Act to control the activities of all entities established in IFSC. IFSCA) was established.

IFSCA has been vested with necessary powers to SEBI, RBI, IRDAI, etc. to fulfill its regulatory function for specified financial products and services. Specified financial products include bullion depository receipts with underlying bullion and bullion spot delivery contracts, while specified financial services include trading in bullion depository receipts with underlying bullion in connection with bullion spot delivery contracts and the provision of bullion financing.

tax and regulatory benefits

In order to promote IFSC and assist in setting up existing operations/ new operations in IFSC, the Government has provided certain tax and regulatory benefits to entities established in IFSC, which include:

• Tax holiday for income arising from business activities carried on by such units for any 10 consecutive years out of a period of 15 years to units established in IFSC, commencing from the year in which the IFSC unit obtained necessary permission for operation Went.
• Reduction in the rate of Minimum Alternate Tax (MAT) to 9% (instead of 15%) for an entity located in IFSC which receives income in fully convertible foreign currency.
• Reduction in withholding tax rate to 4% for certain interest income earned during specified period by non-residents from Indian companies or business trusts
• Exemption from capital gains to non-residents on account of transfer of specified securities listed in IFSC to a recognized stock exchange, where the consideration of such transaction is paid or payable in foreign currency
• No GST on services received by the entity in IFSC and services provided to IFSC/SEZ units or offshore customers
• Banking units will not be required to maintain Statutory Liquidity Ratio or Capital Reserve Ratio
• There is no minimum capital requirement for Global In-house Centers (GICs)
• Exemption from certain eligibility criteria in respect of registration of FPIs for applicants incorporated and established in IFSC.
• Commodity transaction tax is not levied on trades executed on commodity stock exchanges in IFSC
• Stamp duty is not chargeable in respect of instruments of transaction in recognized stock exchanges and depositories established in IFSC
• The IFSC and regulatory regime provides several tax breaks for aircraft leasing activity compared to some foreign jurisdictions.
• Some of the specific tax incentives announced for fund managers set up in Alternative Investment Funds (AIFs) and IFSC include:
• Harmonization of tax rates applicable to FPIs with Category III AIFs in IFSC
• Exemption for certain specific income earned to Category III AIFs in which all units are held by non-residents other than those held by the sponsor/manager
• IFSC AIF Non-resident Investors Exempted From Obtaining PAN Subject To Certain Conditions
• Exemption of such non-resident investors from filing income tax return in India subject to certain conditions
• Category I and II AIF . Exemption of income to non-resident investors from offshore investments made through
• Exemptions/regards to recently established AIFs in IFSC to take leveraged positions, non-applicability of investment concentration norms/diversification limits, allowing co-investment through separate portfolio by issuing different category of entities Has been provided.
• The regulations now allow Indian entities to become sponsors of AIFs under the automatic route in IFSC, provided they fulfill the prescribed conditions.
• Fund managers migrating to IFSC from overseas jurisdictions by setting up AIFs have been given regulatory exemptions under the AIF Regulations, i.e. waiver of requirement of the sponsor/manager to maintain continued interest in such AIFs and various taxes on transfer of existing investments. the profit. AIF.

Some areas need attention

While much has been done over the years to address the concerns of various stakeholders, there are some areas that need some attention. These include, lack of clarity on the requirements of the abstracts for setting up a unit in IFSC, absence of exemption on payments to units availing tax holiday benefits, etc.

The Government of India and regulatory agencies are working together to provide IFSC to a business and regulatory environment that is at par with other major IFSCs. The underlying objective is to make IFSC a global financial hub at par with existing financial centers such as London, New York, Hong Kong, Singapore and Dubai. Currently many banks, insurance companies and capital market intermediaries (including stockbrokers, custodians, depositories, AIFs, portfolio managers, investment advisors, etc.) have their base in IFSC and many players are likely to join soon.

Further, to create a complete ecosystem of financial services in IFSC, business support service providers are also being well supported by IFSCA and as a result, a strong network of lawyers, consultants, trustees and other service providers have been established. has been done. Or in the process of setting up its operations in IFSC.

The approach to promote IFSC deserves appreciation with its success, which is evident with the significant increase in the number of players who have now set up business in IFSC in India. Hopefully, it is a matter of time with the right policy backing, when the Indian IFSC will be one of the major financial hubs for global transactions.

Vikas Vasal is the National Managing Partner-Tax at Grant Thornton Bharat LLP.

Amit Kedia and Hiten Ved contributed to this article.