Any financial business operating out of Gujarat International Finance Tec-City (GIFT) International Financial Services Centre (IFSC) is offered certain tax benefits on fulfilling certain conditions. It means that they can operate in any part of the world effectively. The government gives these tax incentives in form of reduced taxes, simplified compliance requirements and lower withholding rates. That is why at GIFT IFSC, Indian corporations have found a home for global finance. With these tax exemptions, Indian enterprises can expand internationally while potentially lowering their domestic tax obligations too. Entities operating out of GIFT IFSC enjoy a range of attractive tax benefits listed below to boost their competitiveness.

General Direct Tax Incentives

Here are the incentives/tax benefits commonly available to various licenses in GIFT IFSC 

1. Tax holiday for units in IFSC
Section 80LA of the Income Tax Act, 1961 (ITA) says that units operating out of the GIFT IFSC may avail 100% deduction (tax holiday) for any 10 consecutive years out of 15 years, beginning with the year of operation. 

 2. Reduced minimum alternate tax and alternate minimum tax
Section 115JB and 115JC say that units located in GIFT IFSC will receive tax benefits and shall pay Minimum Alternate Tax (MAT) at a rate of 9% instead of 15% and Alternate Minimum Tax (AMT) at a rate of 9% instead of 18%. As per Section 115BAA of the ITA, domestic companies opting for concessional tax rates are exempt from MAT. 

General Indirect Tax Incentives

Here are the incentives commonly available to various licenses in GIFT IFSC: 

1. Goods and Service Tax (GST) 
No GST on supply of goods or services to a unit in IFSC and supplies between GIFT IFSC entities but GST will be charged if IFSC units provide services to Domestic Tariff Area. 

 2. Customs Duty
Goods imported for authorized operations in the SEZ are exempted from customs duty. Custom duty would be charged upon moving items from the SEZ to the Domestic Tariff Area (DTA). 

 3. Stamp Duty
The state of Gujarat has also exempted stamp duty in relation to transaction instruments in stock exchange and depositories set up at GIFT IFSC. Moreover, entities at GIFT IFSC qualify for tax relief on documents signed in their favour. 

The tax system in GIFT IFSC is designed to create a tax-efficient environment and attract financial innovation, so that GIFT IFSC will serve as a competitive global financial hub. Many tax benefits in GIFT IFSC vary depending on the type of regulations applicable to an entity and the nature of activities conducted within the IFSC.

Specific Tax benefits Available to GIFT IFSC Entities Registered Under Different Licenses

1. For Fund/Scheme and Fund Management Entity (FME) 

  • Entities in GIFT IFSC, including FMEs, are treated as non-residents under FEMA and RBI but are treated as residents under income tax. 
  • Non-resident investors are exempted from paying taxes on income earned through overseas investments done by a I or II category funds based on the GIFT IFSC. 
  • Non-resident individuals or foreign companies investing in GIFT IFSC AIFs are exempt from filing income tax returns if appropriate tax deductions have been made at AIF level. 
  • Non-residents investing in Category-I/Category-II GIFT IFSC schemes do not need a Permanent Account Number (PAN) if they earn no income in India except from their investment there. They need to provide specific details to the GIFT IFSC entity like name, email, contact, and address in their home country. 
  • Category-III AIFs income from sale of specified securities on a IFSC stock exchange is tax-exempt in GIFT IFSC, provided all units are owned by non-residents except sponsors or managers. 
  • Capital gains arising on transfer of shares of Indian companies and other Indian securities held by an offshore fund to an IFSC Fund will receive tax benefits. 
  • Any capital gains arising from transfer of capital asset being share/unit by a shareholder/unit holder, in a relocation, held by him in the offshore fund in consideration for share/unit in the GIFT IFSC entity will not be taxable and will get tax benefit.

2. For Aircraft Leasing 

  • Tax holiday on income arising on transfer of aircraft or aircraft engine by aircraft leasing companies located in IFSC to a domestic company engaged in the business of operation of aircraft. The exemption will only be available if the unit has commenced operation on or before March 31, 2025. 
  • Exemption of any income of a non-resident or a unit of an IFSC (engaged primarily in the business of leasing of an aircraft) from the transfer of equity shares of a domestic company being a unit of an IFSC (engaged primarily in the business of leasing of aircraft). This exemption will only be available if the unit has commenced operation on or before March 31, 2026. 
  • Any income of a non-resident by way of royalty or interest, on account of the lease of an aircraft in a previous year paid by a unit of an IFSC will get tax benefits. This is provided that the company is eligible for deduction under Section 80LA of the ITA for the previous year and has commenced its operations on or before March 31, 2025. 
  • Tax benefit on dividend income of an IFSC unit primarily engaged in the business of leasing an aircraft (payee) from another IFSC unit primarily engaged in the business of leasing of an aircraft (payer). 
  • No deduction of tax shall be made on lease rental payments made by a person (lessee) to a person being an IFSC unit (lessor). 

3. For Ship Leasing 

  • The tax holiday applies to the income from the transfer of a ship that has been leased out by a unit established within the IFSC. The only requirement for this exemption is that the unit must have commenced operations on or before March 31, 2025. 
  • Any income of a non-resident by way of royalty, on account of lease of a ship in a previous year, paid by a unit of an IFSC is exempt, provided that the unit has commenced its operations on or before the March 31, 2025. 
  • Tax benefit on dividend income of an IFSC unit primarily engaged in the business of ship leasing (payee) from another IFSC unit primarily engaged in the business of ship leasing (payer). 
  • No deduction of tax shall be made on lease rental payments made by a person (lessee) to a person being an IFSC unit (lessor). 

4. For Securities and Derivatives Listed on an IFSC Exchange 

  • There is no additional income tax levied on income distributed by specified funds derived from transactions on a recognised exchange in any IFSC, with consideration paid in convertible foreign exchange if the transaction occurs after September 1, 2019. 
  • For non-resident individuals or foreign companies, interest income on long-term bonds issued between April 1, 2020, and July 1, 2023, exclusively listed on any recognised exchange in an IFSC is subjected to a withholding tax rate of 4% under Section 194LC. After July 1, 2023, the rate goes up to 9%. 
  • If a taxpayer sells equity shares, equity-oriented funds or units of business trust on the recognized stock exchange located in IFSC, such taxpayer will get a provisional capital gain rate of 10% for long term and 15% for short term capital gains if consideration received in foreign currency terms as per Section 112A and 111A of the ITA. 
  • Transfers of global depository receipts, rupee denominated bonds of Indian companies, derivatives, or other specified securities by non-residents on an IFSC’s RSE is exempt from capital gains tax, provided consideration received in foreign currency. 
  • Commodities transaction tax and securities transaction tax is not levied on securities and derivatives issued out of GIFT IFSC. 
  • Income distributed by IBUs shall not be taxed in the hands of non-resident Offshore Derivatives Instruments (ODI) holders. 

5. For any Debt Instrument Issued out of GIFT IFSC

Interest income received by a non-resident from a unit in GIFT IFSC is exempt under Section 10(15) (ix), provided borrowing done after September 1, 2019.

Why Choose InCorp Advisory?

Our team at InCorp has the expertise to offer comprehensive assistance throughout the entire process of incorporating an entity in GIFT City IFSC. Listed below are the services we offer: 

  • Assistance in structuring the entity as per the requirement. 
  • Providing advisory services on regulation and taxation to ensure compliance and optimal structuring. 
  • Assistance in preparing necessary documentation required for incorporation of entities in GIFT City.  
  • Assistance in setting up entities and post-setup requirements and compliance if required.   

 To learn more about our GIFT City services, you can write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622.

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