Budget Buzz – IFSC – Financial Services

Reiterating its commitment to the promotion and development of
the International Financial Services Centre (IFSC)
located in the GIFT City, Gujarat, the Honorable Finance Minister
has announced a number of measures for expanding the ambit of
activities that can be undertaken under IFSC. The announcements
also ease applicable procedures. Such cumulative action will bring
IFSC a step closer to similarly placed competing international
jurisdictions, in attracting foreign investments.

A brief analysis of some of these measures announced during her
budget speech today are set out hereunder:

Simplification of procedures

• The IFSC being constituted under the SEZ Act and located in the
  GIFT SEZ, setting up of units required dual approvals, (i) from the
  IFSC Authority (IFSCA) and (ii) the concerned
  Development Commissioner of the GIFT SEZ. This duality is now being
  overcome by delegating the powers under the SEZ Act to the IFSCA as
  a unitary approving authority.




• A unit set up in the IFSC is required to obtain multiple
  approvals and registrations including those from GST Authorities,
  relevant regulatory authorities (such as RBI, SEBI IRDI, etc). This
  prolonged the process for setting up of such A single window IT
  system is now intended to be set-up for registration and grant of
  approval by IFSCA, SEZ authorities, GSTN and relevant regulatory
  authority.

Measures to enhance business activities

• Following measures are expected to be introduced to facilitate
  enhancement of business activities within the IFSC:
  

  • Permitting IFSC Banking units of foreign banks to permit
    acquisition financing;

  
  

  • Subsidiary of EXIM bank to be established for trade
    re-financing;

  
  

  • Recognition of offshore derivative instruments as valid
    contracts;

  
  

  • Incorporating provisions in the IFSCA Act for arbitration and
    ancillary services




• In a dynamic move, the IFSC, replicating the environment
  provided by other jurisdictions such as Estonia, Luxembourg,
  Monaco, etc. will also be opened up for setting-up Data Embassies
  to facilitate countries looking for digital continuity

Tax incentives

• With a view to attract various funds including India focused
  funds set up and operating in other jurisdiction, exemption from
  capital gains tax for relocation of funds currently established and
  operated in a jurisdiction outside India, to the IFSC was
  introduced in the Budget of 2021. Such exemption was available only
  if the relocation was carried out prior to 31st March, 2023. This
  date is now proposed to be extended to 31st March, 2025.




• ? Last year the Honourable Finance Minister had introduced
  section 10 (4E) to exempt the income of non-residents on transfer
  of off-shore derivative instruments (ODI). However, such ODIs also
  generate income in the form of interest, dividend, etc., in the
  hands of the ODI holders, earned by the IFSC Banking Unit (being
  issuers of such ODI to non-resident investors) from downstream
  investments. Such incomes in the nature of interest, dividend, etc.
  even though being taxed when received in the hands of IFSC Banking
  Unit were not exempt in the hands of the ODI holders. Section 10
  (4E) is now being amended to exempt such income distributed to IFSC
  the holders of ODI. This amendment is effective from April 1, 2024
  and shall accordingly apply to assessment year 2024-25.

ELP’s Insights

The IFSC is intended to bring those economic activities to India
which are connected to an underlying asset base situated in India.
The current economic growth pattern demonstrated by India, makes it
one of the most attractive investment destinations. However, the
tax and regulatory environment offered by certain international
jurisdictions has resulted in establishment of India focused
Investment Funds in these countries. By offering a tax and
regulatory environment similar to that available in these
jurisdictions, the Government is working hard to attract these
investments back to India. This year’s budget announcements are
a step further in this direction and are expected to make IFSC a
more attractive and effective destination for foreign investors
looking to invest in India.

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