The Budget has extended the tax neutrality to offshore funds that relocate to the International Financial Services Centre (IFSC) at GIFT City, Gujarat, by two years.
Some of the popular offshore fund jurisdictions include Luxembourg, Mauritius, Ireland, Singapore and Cayman Islands. The exemption given to such funds for relocation was set to expire by March this year, and has been extended to March 31, 2025.
This will provide additional time to asset managers who have just been licensed to operate in IFSC or are evaluating the option to relocate. “This is a welcome step, and, along with the other measures announced, would encourage foreign funds to consider GIFT IFSC seriously,” said Sunil Gidwani, partner, financial services, Nangia Andersen.The Budget has announced other measures to enhance business activities at GIFT IFSC. This include delegating powers under the SEZ Act to IFSCA to avoid dual regulation, and setting up a single-window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, RBI, Sebi and Irdai.
Currently, two separate registrations or approvals are required for setting up business in GIFT-IFSC: One from SEZ authorities and the other from sector regulator IFSCA. “Consolidating the powers under the SEZ law with IFSCA, together with a single-window registration which extends to RBI, Sebi and Irdai, will provide a significant boost to ease of doing business in IFSC.
The measures could accelerate the time taken to launch operations in GIFT City if they eliminate the need for participants to seek separate NOCs from their onshore regulators for setting up a presence in IFSC,” said Tejas Desai, partner, private equity tax, EY India.“Delegating powers under the SEZ law to IFSCA is quite radical and would eliminate dual approvals, making setting up of businesses much easier,” added Gidwani.
The Budget has permitted acquisition financing by IFSC banking units of foreign banks and will recognize offshore derivative instruments as valid contracts. It is amending the IFSCA Act for statutory provisions for arbitration, ancillary services, and avoiding dual regulation under SEZ Act. A subsidiary of EXIM Bank will be established for trade re-financing.
“The Budget clearly emphasises the growth aspirations of our nation and the vital role of GIFT City in India’s growth story. The policy support laid out by the government will certainly act as a catalyst in expediting the growth of GIFT City, thus making it a vibrant global financial hub for domestic and international entities,” said Tapan Ray, MD and group CEO, GIFT City.The establishment of an EXIM Bank subsidiary would encourage emerging sectors such as aircraft and ship financing activities in GIFT City, according to Ray. Setting up of data embassies at GIFT City would facilitate digital continuity solutions for countries seeking such solutions, he said.