India’s International Financial Services Centre (IFSC) at GIFT City could become more attractive to investors with a slew of tax incentives brought in through the amendments to the Finance Bill, 2023 including extending a 100% tax holiday available to non-residents for income from portfolio of securities in accounts in offshore banking units for a full 10-year period.
“The amendment proposes that income received by non-residents from portfolio of securities in an account maintained with the Offshore Banking Unit in IFSC will be exempt to the extent such income accrues or arises outside India,” said Gopal Bohra, partner, NA Shah Associates.
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At present, a 100% tax holiday is available for a five-year period and a 50% exemption is then available for the next five years.
The amendments, which along with the Finance Bill were passed by the Lok Sabha on Friday, also introduced a beneficial withholding tax rate of 10% under Section 115A for dividends received by non-residents from IFSC units under Section 80LA. The move is expected to help incentivise investments from non-residents into IFSC.
However, there is one tightening of tax norms proposed in the amendments for levying of tax collected at source of 20% for remittances even within India. The move is aimed at bringing tax parity in treatment of funds remitted. At present, TCS
Further, the benefit of Section 194LC has also been extended but at a higher withholding rate of 9% to long-term bonds or rupee-denominated bonds issued after July 1, 2023, which are listed on recognised stock exchanges in IFSC. This rate was earlier at 5%.
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“The extension of the 194LC benefit was an anticipated amendment, which was initially missed out on in the Budget last month but has now been rectified. Despite the proposal for a higher withholding tax rate of 9%, this is a welcome move since the scope of the section is being expanded to include interest in certain bonds listed in stock exchanges located in IFSC. This may provide more funding options to Indian entities,” said Rajesh Srinivasan, Partner, Deloitte India.
Sunil Gidwani, partner, Nangia Andersen LLP, said several significant changes have been brought about which can be termed as the “last mile” changes to remove remaining bottleneck in IFSC. “These measures will make IFSC difficult to ignore for any large financial markets player,” he said.
While most of the exemptions required by foreign investors and aircraft lessors are in place for exemption for royalty and interest income, now it has also been extended to capital gains and dividend received by a company in IFSC which leases an aircraft through a step-down special purpose vehicle. This had been a key demand of the industry and will encourage investment into aircraft leasing in IFSC.
Further, the amendments have also proposed waiver of surcharge on capital gains earned by GIFT Category III from securities, which is also expected to boost investments.
The amendment has also introduced a provision for tax-neutral reallocation of any investment vehicle in which the Abu Dhabi Investment Authority is sole direct or indirect shareholder or unit holder to GIFT City.
The Gujarat International Finance Tech-city (GIFT) SEZ is India’s first and only IFSC and it is being developed as a global financial services hub.