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GIFT City IFSC vs Singapore: Why GIFT City Is The Better Destination For Stockbrokers

by InCorp Advisory

Reading Time: 3 minutes

In recent years, Singapore and GIFT City IFSC have emerged as two of the most prominent financial hubs in Asia. Both locations offer world-class infrastructure, skilled talent pools, and access to global markets, making them attractive destinations for stockbrokers looking to expand their regional operations. However, there are significant differences between the two locations that stockbrokers must consider when deciding where to set up their business.

In this blog, we will compare the advantages and disadvantages of setting up a brokerage firm in Singapore versus GIFT City IFSC.

Market Access

One of the most critical factors that stockbrokers must consider when selecting a location is market access. Singapore and GIFT City IFSC have different markets with different regulatory frameworks and market structures. Singapore has a well-established financial market with a sophisticated regulatory framework and access to global markets. Stockbrokers in Singapore can trade in equities, fixed income, derivatives, and other financial products, making it a well-diversified market. However, Singapore’s financial market is relatively small compared to other global financial centers, such as New York and London.

In contrast, GIFT City IFSC offers access to India’s financial market, one of the fastest-growing economies globally. India has a large and rapidly growing middle class, driving demand for financial products such as insurance, mutual funds, and equities. Stockbrokers in GIFT City IFSC can access the Indian market through the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Moreover, India has a vast unbanked population, which provides opportunities for innovative financial products and services. Therefore, stockbrokers looking to tap into the growth potential of the Indian market may prefer GIFT City IFSC over Singapore.

Related Read: Budget 2023: Major Boost & Benefits For GIFT City IFSC

CLICK HERE

Regulatory Framework

Another crucial factor that stockbrokers must consider when selecting a location is the regulatory framework. Singapore is known for its strict regulatory environment, which offers a high level of investor protection. The Monetary Authority of Singapore (MAS) regulates all financial institutions in Singapore and ensures that they comply with strict standards for risk management, customer protection, and market integrity. The MAS has also implemented regulations to combat money laundering and terrorist financing, which reduces the risk of fraud in the financial system.

In contrast, GIFT City IFSC has a less stringent regulatory environment than Singapore. The International Financial Services Centre Authority (IFSCA) regulates financial institutions in GIFT City IFSC and has implemented a more flexible regulatory framework to attract foreign investors. The IFSCA has also implemented tax incentives, such as tax exemptions on income from international transactions, which reduces the tax burden on stockbrokers.

Tax Incentives

One of the most significant advantages of GIFT City IFSC over Singapore is the tax incentives. The Indian government has implemented several tax incentives to attract foreign investors to GIFT City IFSC. For example, companies operating in GIFT City IFSC are exempt from taxes on income generated from international transactions. Moreover, the Indian government has also implemented a low tax rate of 9% for companies operating in GIFT City IFSC, which is significantly lower than the tax rates in Singapore.

In contrast, Singapore has a higher tax rate than GIFT City IFSC. The corporate tax rate in Singapore is 17%, which is higher than the tax rate in GIFT City IFSC. Moreover, Singapore has implemented a Goods and Services Tax (GST), which imposes a tax of 8% on goods and services sold in Singapore.

Related Read: A Complete Overview Of IFSC Gift City And Tax Benefits

CLICK HERE

Conclusion

Singapore and GIFT City IFSC are attractive destinations for stockbrokers looking to expand their operations in Asia. Singapore offers access to a well-established financial market with a sophisticated regulatory environment and access to global markets. On the other hand, GIFT City IFSC provides access to the fast-growing Indian market, which offers vast opportunities for growth and innovative financial products.

Additionally, GIFT City IFSC offers more relaxed regulations and tax incentives, making it a more cost-effective option for stockbrokers. Ultimately, the decision between Singapore and GIFT City IFSC will depend on each stockbroker’s unique business needs, risk tolerance, and growth strategy.

Related Read: Benefits For Stock Brokers Registered In IFSC GIFT City

CLICK HERE

Why Choose InCorp?

InCorp can offer comprehensive guidance to existing and new setups like stockbrokers looking to establish a business in the IFSC jurisdiction.

Our expert team provides valuable insights on regulatory compliance, tax planning, and business strategy to ensure that you can navigate the complexities of setting up your business efficiently and effectively. With our assistance, you can be confident in your ability to establish a successful business plan from the IFSC jurisdiction.

FAQs

What is GIFT City IFSC, and how does it compare to Singapore's financial hub?

GIFT City IFSC is a global financial center located in Gujarat, India. It is designed to cater to the growing demand for international financial services in India and the surrounding region. In contrast, Singapore has long been a financial hub in the Asia-Pacific region and has a well-established financial ecosystem.

Why is GIFT City IFSC a better destination for stockbrokers?

GIFT City IFSC offers several advantages for stockbrokers, including lower operating costs, a highly skilled workforce, and a favorable regulatory environment. Additionally, GIFT City IFSC's proximity to India's fast-growing economy presents significant opportunities for stockbrokers.

What are the costs associated with operating in GIFT City IFSC compared to Singapore?

Operating costs in GIFT City IFSC are significantly lower than those in Singapore. For example, rental costs for office space in GIFT City IFSC are approximately 60% lower than in Singapore.

What kind of regulatory environment does GIFT City IFSC offer for stockbrokers?

GIFT City IFSC has a favorable regulatory environment for stockbrokers, with streamlined regulations and a business-friendly government. Additionally, GIFT City IFSC offers tax incentives to attract foreign investors.

What kind of infrastructure does GIFT City IFSC offer for stockbrokers?

GIFT City IFSC has state-of-the-art infrastructure, including modern office buildings, reliable telecommunications, and excellent connectivity to major cities in India and abroad.

What kind of skilled workforce does GIFT City IFSC offer for stockbrokers?

GIFT City IFSC has a highly skilled workforce, with many professionals trained in finance, accounting, and technology. Additionally, GIFT City IFSC offers training programs to help professionals stay up-to-date with the latest industry trends and developments.

What kind of investment opportunities does GIFT City IFSC offer for stockbrokers?

GIFT City IFSC offers significant investment opportunities in the Indian market, which is one of the fastest-growing economies in the world. Additionally, GIFT City IFSC is well-positioned to capitalize on the growing demand for financial services in the surrounding region.

What kind of support does GIFT City IFSC offer for stockbrokers?

GIFT City IFSC offers a range of support services to help stockbrokers succeed, including access to legal and accounting services, marketing support, and assistance with business development.

What is the business culture like in GIFT City IFSC?

The business culture in GIFT City IFSC is highly entrepreneurial, with a strong focus on innovation and collaboration. Additionally, GIFT City IFSC has a vibrant startup ecosystem, with many companies working on cutting-edge technologies and solutions.

What is the outlook for GIFT City IFSC compared to Singapore?

GIFT City IFSC is expected to continue to grow and develop as a global financial center, with significant investments in infrastructure and technology. Additionally, GIFT City IFSC is well-positioned to capitalize on the growing demand for financial services in India and the surrounding region.

Need help with navigating the rules and regulations in Gift city?

Get in touch with us right away!

Gift City: The New Hub For Indian Aircraft Leasing And Financing

by InCorp Advisory

Reading Time: 4 minutes

India is one of the fastest-growing aviation markets in the world, with the potential to become the third-largest aviation market by 2025. However, the country’s aviation industry has been facing challenges in terms of financing and leasing, hindering its growth. In response to this, the Ministry of Civil Aviation, Government of India constituted a Working Group on Development of Avenues for Aircraft Financing and Leasing Activities, known as ‘Project Rupee Raftar.’

The project aims to develop a robust and indigenous leasing and financing structure in the country, with the involvement of various stakeholders, regulatory bodies, and financial institutions. Through the efforts of Project Rupee Raftar, the International Financial Services Centre Authority Act (IFSCA) notified aircraft leasing as a financial product, creating a significant opportunity for the establishment of a viable aircraft leasing market in India. The scope of aircraft leasing includes operating lease, finance lease, and a hybrid of both. Finance lease is considered a permitted core activity, while operating lease is regarded as a permitted non-core activity.

In this blog, we will explore how the IFSCA’s move to include aircraft leasing as a financial product has opened up new avenues for financing and leasing activities, unlocking the unbridled potential of the Indian aviation market. The blog comprises of the eligibility criteria, process for registering in GIFT IFSC, tax benefits for lessors and certain general conditions to follow:

Eligibility for Aircraft Leasing in GIFT City

Lessor can undertake permissible activities depending upon nature of lease:
Eligibility for Aircraft Leasing in GIFT City

Related Read: Budget 2023: Major Boost & Benefits For GIFT City IFSC

CLICK HERE

Eligibility of Applicant to act as lessor for Aircraft leasing in IFSC are as follows:
Eligibility of Applicant to act as lessor for Aircraft leasing in IFSC GIFT CityPromoters/partmers/Trustees shall be in Financial Action Task Force compliant jurisdiction

Minimum capital requirement of USD 30,00,000 for financial lease and USD 2,00,000 for operating lease.
Application fees of USD 1,000 (one time) and registration fees of USD 12,500 (one time) for finance lease, and application fees of USD 1000 (one time) and registration fees of USD 5000 (one time) for operating lease. Annual fees are USD 12,500 (2nd year onwards) for finance lease and USD 3,000 (2nd year onwards) for operating lease.

Related Read: A Complete Overview Of IFSC Gift City And Tax Benefits

CLICK HERE

Process flow for registration of Aircraft Leasing in GIFT City

Process flow for registration of Aircraft Leasing in GIFT City

Benefits for Aircraft lessor registered in GIFT City- IFSC

Particulars  Benefits 
Income Tax Act  
  • 100% tax exemption for 10 consecutive years out of 15 years 
  • Capital gain tax deduction from transfer of an aircraft or aircraft engine previously leased by it to any person then the previously mentioned tax holiday period is also applicable to it, provided it has commenced its operations by March 31, 2024, under section 80 LA of Income Tax Act,1961. 
  • MAT / AMT @ 9% of book profits applies to Company / others setup as a unit in IFSC (MAT not applicable to companies in IFSC opting for new tax regime). 
  • Dividend paid to shareholders of company in IFSC (Taxable in the hands of recipient, Exemption not relevant due to withdrawal of DDT regime). 
  • No withholding of taxes is required on interest paid to Non-residents by units in IFSC. 
  • Withholding of taxes is not required on aircraft lease payment to non-residents by units in IFSC provided it has commenced its operations on or before March 31, 2024. 
Goods and Service Tax 
  • No GST on services – 
    • received by unit in IFSC 
    • provided by IFSC / SEZ units to offshore clients 
  • GST applicable on services provided to DTA 
Customs Duty 
  • Exemption from customs duty for all goods imported in the SEZ used for authorized operations. However, any removal of goods from SEZ into Domestic Tariff Area (“DTA”) would attract customs duty. 
Central Excise 

Duty 
  • Exemption from duty of excise on domestic procurement to carry out authorized operations. However, the removal of goods into DTA shall be liable to excise duty. 
Other Benefits 
  • 100% reimbursement of stamp duty and registration paid 
  • 100 % reimbursement of electricity duty and Re. 1 subsidy on power tariff for a period of 5 years. 
  • 100% of EPF amount paid in case of female employees and 75% of EPF amount paid in case of male employees 
  • Lease rental subsidy for every 50 sq. ft per employee 
  • Up-to 20 employees – Rs 8 per sq. ft 
  • 20-100 employees – Rs 5 per sq. ft 
  • 21 Above 100 employees – Rs 3 per sq. ft 

Related Read: How To Incorporate AIF In GIFT City-IFSC?

CLICK HERE

Benefits given by Gujarat Government for setting unit in GIFT City IFSC in Gujarat IT/ITeS policy (2022-27) :

Benefits given by Gujarat Government for setting unit in GIFT City IFSC in Gujarat IT/ITeS policy

General Conditions:

  • Lessor should undertake all transactions in freely convertible foreign currency only. Administrative expenses may be undertaken by the lessor in INR by maintaining a separate INR account. 
  • Books of Accounts, records, document to maintained as required by applicable law in any freely convertible currency. 
  • Lessor shall submit annual final statement within 15 days of finalization all financial information in USD unless otherwise specified. 
  • Lessor shall comply with Cape Town Convention and Protocol and other required statutory requirement, obligation, standards, policies direction and guidelines. 
  • In case the lessor fails to comply with the condition subject to which registration is granted, IFSCA may act after giving an opportunity of submission.

Conclusion

In conclusion, the Indian government’s initiative to develop a robust and indigenous leasing and financing structure, and the IFSCA’s decision to notify aircraft leasing as a financial product, has created a viable aircraft leasing market in India. The registration of aircraft lessors in GIFT City-IFSC offers various benefits, including tax exemptions, GST and customs duty exemptions, and other subsidies, which make it an attractive destination for aircraft leasing companies.

Related Read: Benefits For Stock Brokers Registered In IFSC GIFT City

CLICK HERE

Why Choose InCorp?

At Incorp, we understand the importance of a robust and indigenous leasing and financing structure for the aviation industry. We recognize that setting up an aircraft leasing company can be a complex process, requiring expertise in various fields, including finance, law, and regulation. That’s why we offer specialized advisory services to assist companies in setting up aircraft leasing companies and availing the benefits of the recently created aircraft leasing market in India. Our team of experts can guide companies through the entire process, from initial planning and formation to ongoing compliance and management. With our help, companies can take advantage of the significant benefits offered by the new market, including access to affordable capital and increased flexibility in fleet management. Contact us today to learn more about how we can help your company succeed in the aircraft leasing industry in GIFT City.

FAQs

Whether sale and purchase of aircraft are included in the above framework?

No, the above framework includes activities related to aircraft leasing including operating, finance leasing, hybrid leasing, asset management support services for assets owned or lease out and sale or lease back, purchase, novation, transfer, assignment, or similar transaction related to aircraft leasing.

What are the key benefits of Aircraft leasing from IFSC?
The key benefits of Aircraft leasing from IFSC are as follows:
A. Regulatory Regime
  • Light touch regulation in a robust framework
  • Engagement with forward looking proactive and unified regulator
B. Global Opportunities
  • IFSC offers an ideal platform to undertake operating as well as finance leasing activities for India as well as for global markets
C. Tax Efficient Jurisdiction
  • IFSC offers a globally competitive tax regime
  • Exemption from Capital Gain Tax on disposal of aircrafts
  • Waiver of stamp duty
D. DTAA
  • Extensive Double Tax Treaty Network with more than 90 Jurisdiction
E. Vibrant Financial Growth
  • Concentration of financial institutions in IFSC including global bank, asset management companies, finance companies and professional service provider.
  • Access to global financial institution and investor
Whether lessor can setup aircraft leasing business as partnership firm in GIFT city?

Lessor is allowed to set up the operations only in the form of limited liability partnership, company, or Trust and not in form of Partnership firm.

Whether any subsidiary or associate company of parent company can set up business operation as lessor?

Only Wholly owned Subsidiary of parent company are allowed to undertake aircraft lease in GIFT city.

Need help with navigating the rules and regulations in Gift city?

Get in touch with us right away!

Budget 2023-24: Major Boost And Benefits For GIFT City IFSC

by InCorp Advisory

Reading Time: 5 minutes
Union Budget 2023-24, presented by the Honourable Finance Minister, Ms Nirmala Sitharaman, hopes to build on the foundation laid in the previous Budgets. GIFT City – IFSC (Gujarat International Finance Tec-City – International Financial Services Centre) continues to be a focus area for the Government with key policy announcements being made in this Budget 2023-24 as well.

Introduction

Union Budget 2023-24 aims to provide the necessary support and infrastructure to help GIFT City – IFSC attract more international financial services and companies, thereby contributing to the country’s economic growth and development. Budget 2023-24 amendments and policies emphasise the government’s commitment to creating a favourable business environment for companies operating in the IFSC, with a focus on simplicity, transparency, and stability.

Announcements will play a critical role in furthering the government’s goal of making India a hub for international finance and a global financial market leader. We have covered the announcements in the following 3 parts:

Policy Announcements For GIFT City IFSC

1. Acquisition financing proposed to be permitted by banking units of foreign banks in IFSC

Background

  • Acquisition financing is a type of financing used by businesses to purchase other businesses or assets
  • As per present regulations, foreign banks having its unit/ operations in IFSCs are permitted to finance the acquisition of assets/businesses outside India by Indian Corporates
  • Currently, overseas branches of Foreign Bank were funding such acquisitions and not those units are in IFSC

Proposal

  • IFSC regulations to be amended to allow foreign banks through their IFSC banking units for finance merger & acquisition

Impact

  • This is an appropriate measure to facilitate Corporates for achieving a reduction in the cost of financing outbound mergers & acquisitions

2. Setting up data embassies in IFSC (Countries looking for digital continuity solutions)

Background

  • A ‘data embassy’ is a concept for ensuring digital continuity for a country, where a nation’s critical data and digital infrastructure are stored in a secure location outside of its physical borders
  • ‘Digital continuity solutions’ means solutions for ensuring the continuous and secure operation of digital systems, even in the event of a disaster or other disruption
  • Any country would prefer to establish these data embassies in areas with a supportive legal and regulatory climate, as well as robust physical security measures

Proposal

  • IFSC regulations to be amended to allow foreign banks through their IFSC banking units for finance merger & acquisition

Impact

  • IFSC regulations to be amended to allow the setting up of Data Embassies
  • Participating countries will be able to take advantage of IFSC in form of favourable legal & tax regulations, lower operating costs, and supportive infrastructure facilities resulting in cost-effectiveness

3. Proposed to set up a subsidiary of EXIM bank for trade refinancing in IFSC

Background

  • Export-Import (EXIM) bank’s subsidiary may provide trade financing solutions, such as working capital loans, export credit insurance, and supply chain financing, to businesses operating in the IFSC and beyond
  • The subsidiary would aim to support businesses in accessing the financing they need to grow their international trade activities and to promote economic growth and competitiveness

Proposal

  • A subsidiary of the EXIM Bank of a country is proposed to be set up in IFSC for trade refinancing, would offer trade financing services to support international trade and commerce

Impact

  • By setting up in the IFSC, the subsidiary of the EXIM Bank can take advantage of the favourable legal and regulatory environment, as well as enjoy secured and efficient trade financing solutions
  • It will encourage participation in emerging sectors such as Aircraft leasing, ship leasing etc

Rationalization Of Policies For GIFT City IFSC

1. IFSCA is set to be empowered with the powers of a Special Economic Zone (SEZ) authority to avoid dual regulation

Background

  • According to the current GIFT city regulations, the applicant must submit the Gift City-IFSC registration application to both the IFSC and the SEZ authority
  • Applicant is required to represent its business activity and project viability report to both the authority parallelly
  • The process would take a relatively long time due to duplication of work and resources as both regulators were involved

Proposal

  • IFSCA has empowered SEZ authority to enhance its scope as a single-point regulator

Impact

  • Single point regulator will be streamlining the registration process and avoid duplication of time, efforts & resources
  • The amendment also includes assigning powers to IFSC about a specific power of SEZ such as arbitration, ancillary services etc

2. Single window registration and approval system for IFSCA, SEZ authorities, IRDAI, GSTN, RBI, and SEBI

Background

  • A ‘data embassy’ is a concept for ensuring digital continuity for a country, where a nation’s critical data and digital infrastructure are stored in a secure location outside of its physical borders
  • ‘Digital continuity solutions’ means solutions for ensuring the continuous and secure operation of digital systems, even in the event of a disaster or other disruption
  • Any country would prefer to establish these data embassies in areas with a supportive legal and regulatory climate, as well as robust physical security measures

Proposal

  • Setting up an ecosystem wherein single window registration and approval system for all approvals under IFSCA, SEZ authorities, IRDAI, GSTN, RBI, and SEBI

Impact

  • This system will streamline and reduce the time involved in the process of obtaining approvals and registrations by bringing together multiple regulatory agencies

3. Offshore derivative instrument (ODI) proposed to be considered as a valid contract

Background

  • Currently, International Banking Unit (IBU) and other entities were unable to issue the ODI as they were not recognised under the law due to which branches of foreign banks were unable to issue ODI from IFSC and were therefore unable to move their trading desks to IFSC.
  • These instruments are covered under Securities Contract (Regulation) Act (SCRA)

Proposal

  • It is proposed that an Offshore derivative instrument would be considered a valid contract to clarify the position of ODI in IFSC banking units

Impact

  • Overall, clarifying offshore derivative instruments as valid contracts would avoid ambiguity
  • Amendments in IFSC regulations have pave way for participatory notes instruments

Related Read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

Tax Announcements For GIFT City IFSC

1. Extension of tax benefit period for relocation of AIFs to new find location in GIFT City – IFSC to 31st March 2025

Background

  • AIFs, which are financial vehicles that pool funds from multiple investors to invest in alternative assets such as private equity, real estate, hedge funds etc
  • IFSC has already notified the framework for setting up and its permitted activities for Alternative Investment Funds (AIF)

Proposal

  • The extension of the tax benefit period for relocation of AIFs to a new location in the GIFT City- IFSC which has now been extended until 31st March 2025 (earlier 31st March 2023)

Impact

  • AIFs can enjoy an extended period to continue receiving all tax benefits while they are in the process of relocating within IFSC

2. Any income of non-resident Offshore Derivative Instruments (ODI) holder distributed by an offshore banking unit located in IFSC shall be exempt

Background

  • Currently, as per existing regulations, there was no clarity on ODI transaction was a valid contract or not
  • Taxation on ODI held in IFSC was unclear

Proposal

  • Income of non-resident ODI holders distributed by offshore banking units located in IFSC shall be exempt if the income is chargeable to tax in the hands of the IFSC Banking Unit

Impact

  • Since, ODI is treated as a valid contract, in line with the Budget 2023-24 amendment, there was a consequential amendment required regarding clarity on the taxation of ODI

Related Read: A Complete Overview of IFSC Gift City and Tax Benefits in Gift City

CLICK HERE

Conclusion

GIFT City – IFSC is quickly becoming a preferred jurisdiction for international financial services. Recognizing the growing importance of IFSC, the Global Financial Centres Index, London Report (March 2022) ranked GIFT City’s IFSC first among 15 global centres. Government has set its sights on transforming GIFT City into a thriving financial hub with an international character and innovative solutions for financial issues. Ongoing changes, amendments, clarifications, and regulations are expected to be introduced in pursuit of this long-term objective. 

Why Choose InCorp?

At Incorp, we have the expertise and skills to guide you through the entire nuance of processes and Gift city. We are here to ensure peace of mind, from setting up your company in Gift City to staying compliant and efficiently managing your taxes on time.

Need help with navigating the rules and regulations in Gift city?

Talk to our expert today!

A Complete Overview of IFSC Gift City and Tax Benefits in Gift City

by InCorp Advisory

Reading Time: 5 minutes

Gujarat International Finance Tec-City (GIFT City) is a planned business district in Gujarat, India. It is the new business destination offering competitive edge to Financial services and Technology related activities.

This article helps you understand GIFT city’s structure, permissible services, and tax benefits.

What Is GIFT City?

GIFT City is a multi-service Special Economic Zone (SEZ) with an International Financial Services Centre (IFSC) and a local financial centre. It is India’s first operational greenfield smart city and international financial services center, promoted by the Government of Gujarat as a greenfield project.

With the creation of an International Financial Services Centre, the goal is to create a world-class smart city that will become a worldwide financial hub. The government is also attempting to bring financial services and transactions to India that are now carried out in offshore financial centres by local corporate entities and overseas branches or subsidiaries of financial institutions (FIs).

GIFT City is equipped with some of the latest technology known to man. From the latest public transport, state-of-the-art infrastructure to automated waste collection to an efficient district cooling system, Gift City is an ideal environment for you to set up your business.

Related Read: GIFT City – An Overview and Tax Incentives Announced In The Budget

CLICK HERE

What Is IFSC at Gift City?

International Financial Service Centre (IFSC) is a multi-service SEZ in Gift city. IFSC is India’s first Offshore financial center. Currently, there are more than 125 licensed financial entities in IFSC. The key institutions permitted to set up an IFSC unit are the Banking sector, Insurance sector, and Capital Markets.

International (IFCs) or offshore Financial Centers are financial centres that serve consumers from countries other than their own (OFCs). All of these centres are ‘international’ in the sense that they deal with the cross-border flow of money and financial products and services.

An IFSC is thus a jurisdiction that delivers world-class financial services to non-residents and residents in a currency other than the domestic currency (Indian rupee) of the area where the IFSC is located, to the extent permissible under present legislation.

The IFSC allows Indian corporate businesses and overseas branches/subsidiaries of Financial Institutions (such as banks, insurance firms, and other financial institutions) to bring financial services and transactions that are now carried out in offshore financial centres back to India.

It provides a commercial and regulatory environment that is comparable to London and Singapore, two of the world’s top international financial centres.

IFSCs are designed to give Indian corporations easier access to global financial markets while also complementing and promoting the development of India’s financial markets.

The Gujarat International Finance Tec-City in Gandhinagar, Ahmedabad, Gujarat, has become India’s first IFSC. It is the only IFSC in India that has been authorised.

Related Read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

What If Gift City SEZ?

  • SEZ is an area designated in Gift city where you may set up units to carry specific manufacturing and trading activities and provide certain services.
  • It is considered a foreign territory which means that you need to treat the goods and services going into SEZ as exports and goods and services coming from the SEZ as imports.
  • An SEZ aims to boost the economy by exporting certain goods and services.

What are The benefits in GIFT city?

Government of India along with Government of Gujarat have provided a slew of benefits to the entities setting up the GIFT City. These incentives range from exemption of registration fee and stamp duties to tax benefits. Details of the benefits in Gift City are set out herein below:

Related Read: Union Budget 2023-24 – GIFT City IFSC

CLICK HERE

Fiscal Benefits to IFSC units:

1. Income Tax Benefits

Units in IFSC:

    • 100% tax exemption for 10 years out of 15 years
    • IFSC Unit has the flexibility to select any 10 years out of 15 years block
    • MAT / AMT @ 9% of book profits applies to Company / others setup as a unit in IFSC – MAT not applicable to companies in IFSC opting for new tax regime
    • Dividend paid to shareholders of company in IFSC: From 01 April 2020, dividend income distributed by Company in IFSC to be taxed in the hands of the shareholder.

Investors:

    • Interest income paid to non-residents on: (i) Money lent to IFSC units not taxable. (ii) Long Term Bonds and Rupee Denominated Bonds listed on IFSC exchanges taxable at a lower rate of 4%
    • Transfer of specified securities* listed on IFSC exchanges by a non-resident not treated as transfer – Gains accruing thereon not chargeable to tax in India

2. Goods and Services Tax (GST) Benefits

Units in IFSC:

    • No GST on services: (i) received by unit in IFSC. (ii) provided to IFSC / SEZ units, Offshore clients.
    • GST applicable on services provided to Domestic Tariff Area

Investors:

    • No GST on transactions carried out in IFSC exchanges

3. Other Taxes and Duties

Units in IFSC:

    • State Subsidies – Lease rental, PF contribution, electricity charges.

Investors:

    • Exemption from Security Transaction Tax (STT), Commodity Transaction Tax (CTT), stamp duty in respect of transactions carries out on IFSC exchanges.

Operational Benefits:

1. Exemption from currency control regulations to IFSC Units:

Under SEZ Act, a unit set up in IFSC is treated as a non-resident. Even under Foreign Exchange Management Act, 2002 (“FEMA“) units in IFSC enjoy the benefits of a non-resident under exchange control provisions.

2. Liberalized currency control regime for Indian residents:

Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 (“ODI Regulations”) restrict investment by an Indian resident into an overseas firm in the financial services sector. To enable, Indian residents to set-up and invest funds in GIFT City, RBI, vide its Circular dated May 12, 2021 has permitted sponsor contribution from a sponsor Indian party in an Alternative Investment Fund (AIF) established overseas, including IFSC

What are the services rendered in GIFT city?

Gift City was established to facilitate business in the banking and insurance sector as well as capital markets. The following services are rendered:

  • To raise funds for individuals, corporations, and governments.
  • Asset management and global portfolio diversification are undertaken by pension funds, insurance companies, and mutual funds.
  • Global tax management.
  • Corporate treasury management operations.
  • Risk management operations such as insurance and reinsurance.
  • Merger and acquisition activities among multinational corporations.

Related Read: Benefits For Stock Brokers Registered in IFSC GIFT City

CLICK HERE

Conclusion

IFSC reinforces India’s strategic position as a global business hub for financial services. The city has a lot of economic and fiscal advantages. It has been meticulously planned and structured to lure foreign investors and institutions. The Government of India has made significant efforts to promote the establishment of the IFSC, Gift City. The aim is to be on par with other leading financial centers such as Dubai, Singapore, and London.

Why Choose Incorp?

At Incorp, we have the expertise and skills to guide you through the entire nuance of processes and Gift city. We are here to ensure peace of mind, from setting up your company in Gift City to staying compliant and managing your taxes on time with ease.

FAQs

What is the aim of GIFT City?

GIFT shall be a part of the future urban complex of Ahmedabad & Gandhinagar. GIFT is designed as a hub for the global financial services sector.

When was GIFT City launched?

The GIFT city – an international financial services hub conceptualized by Mr. Modi was launched in 2008.

Is GIFT City a government company?

Government of Gujarat through its undertakings Gujarat Urban Development Company Limited (GUDCL), Gujarat Maritime Board (GMB) and Gujarat Industrial Development Corporation (GIDC) is implementing "Gujarat International Finance Tec-City Company Limited" (GIFTCL).

How do I invest in GIFT City?

While it is mandatory to open a demat account at a GIFT IFSC based depository for trading, an offshore dollar-based bank account in IFSC is not mandated. Funds can be transferred from the local bank account of the investor to the NSE IFSC registered broker's bank account in GIFT City.

Who can set up an entity in IFSC?

Currently, there are more than 125 licensed financial entities in IFSC. The key institutions permitted to set up an IFSC unit are the Banking sector, Insurance sector, and Capital Markets.

Need help with navigating the rules and regulations in Gift city?

Get In Touch With Us Today

Overview of GST on Goods Given as Gifts or Free Samples

by InCorp Advisory

Reading Time: 5 minutes

Organizations have adopted various marketing strategies to boost sales in a consumer-oriented marketplace. To expand their customer base, they distribute goods or services as free samples or gifts. Such samples/ gifts are also known as “Business promotion.” 

Further, distributors are often given additional goods free of cost, a sponsored foreign trip, or certain home appliances when they achieve their sales target. Such expenses are incurred to increase the sales of the company. In this article, we discuss GST taxability on gifts and free samples. Also, the availability of ITC in such activities.

What are the sections relating to GST applicability on gift/free samples?

First, let us take a glance at the related provisions of eligibility of ITC (Input Tax Credit) under the CGST Act on the inputs used by a company:

A. Section 16 of the CGST Act provides that ITC can be availed if the goods/services procured as inputs are used or intended to be used in the course or furtherance of business.

B. Section 17(5)(h) of the CGST Act provides that ITC is ineligible on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.

Therefore, a company can claim ITC if it satisfies the conditions specified under section 16 of the CGST Act and does not fall under the list of restricted credit mentioned under section 17(5)(h) of the CGST Act.

Related Read: An Overview on Composition Scheme under GST

CLICK HERE

Impact of GST on goods given as free samples/gifts or Business Promotion

We have tabulated a chart on the impact of GST on goods given as free samples/gifts or Business Promotion. In the below scenarios, the parties to the transaction are not related persons as defined under the GST Law.

Scenario Activity GST Impact
1 Buy “x” Qty get “y” Qty free (Same Product)
  • This is a common marketing strategy wherein (x+y) quantity is sold for the price of “x” quantity. In this case, GST is payable on the price charged to the customer. Since no other consideration is flowing to the seller, GST is not payable on the notional value of “y” quantity. Input tax credit on inputs/services is available without any restriction.
  • Here we can also have a case of a company offering specific discounts on achieving a particular sales target during a given time. 
2 Buy Product “A” and get Product “B” free. In this case, we have 2 types of promotion schemes:-

  • If Product A and Product B are related and sold together in the normal course of business, it will be a case of composite supply. The seller needs to charge the GST applicable on a dominant product on the transaction value.
  •  If Product A and Product B are not related and sold together in the normal course of business, it will be a case of mixed supply. The seller needs to charge the highest rate of GST applicable to Product A or Product B on the transaction value.
3 Free Samples of products manufactured /traded by Company to distributors
  • Companies distribute free samples of new products to test the market response or promote the sales of their product. The products are given without consideration and qualify as free samples/gifts. 
  • In this case the company will not be eligible to claim ITC on account of specific restrictions of ITC as per section 17(5)(h).
4 Gold Coins, Outstation Trips, Home Appliances given to distributors under Incentive schemes
  • Many times, companies promise freebies such as gold coins, outstation trips, home appliances etc.  to promote sales to its distributors/customers who achieve a particular sales target. This is a clear case of goods distributed as gifts without any consideration. ITC is not available to the company on the purchase of such goods. 
  • A company need not pay GST on goods distributed as gifts because it doesn’t meet the supply criteria under GST. 
5 Distribution of advertisement materials such as stationery items with name of company embossed on it, signage display
  • It is considered entirely as a business expenditure. It has been incurred to facilitate the business and can’t be termed as a gift. It is an advertisement and the supplier gets material benefits. Essential characters of gifts are missing. Directly or indirectly, suppliers benefit from this and not the recipient. No GST payable on the distribution of such goods. Further, the supplier is eligible for ITC. 
  • However, some advance rulings have held otherwise. It was held that ITC is not allowed as it was considered as a gift.
6 Distribution of Catalogue, Brochures, Rate Card to customers
  • This is not a case of a gift. Catalogue, Brochures, Rate Card etc. are given to customers as a normal business practice to promote the company. There will be no reversal of ITC under this scenario.
7 Goods/ services distributed under CSR Activity
  • This is an unsettled question whether ITC can be claimed on goods distributed free as a part of CSR activities. We have contradicting advance rulings on the subject where some allow ITC and some disallow ITC.
  • Arguments in favor of allowing ITC of CSR activity is that CSR is obligatory under the Companies’ Act 2013. Further, the CSR activity is regular in nature. This is opposed to a ‘gift’ which is voluntary and occasional in nature. Therefore ITC of goods/services distributed under CSR activity should be eligible. It shall not fall under the purview of section 17(5)(h).
8 Supply of Moulds and Dyes by Principal to Job worker without any consideration
  • If the contract between the Principal and Job worker is to undertake job work activity using the moulds and dyes belonging to the Principal then the Principal need not pay GST on its supply. Further there is no need to reverse input tax credit by the Principal.
9 Gift by Employer to Employee
  • Gift given by employer to employee of value not exceeding Rs. 50,000/- per employee in a financial year then ITC to be reversed. 
  • In case of value exceeding Rs. 50,000/-, the employer needs to pay output GST on such supplies and as a result he is eligible for ITC of such supplies. 
10 Goods supplied free of cost under Warranty Under replacement warranty, goods are supplied free of charge to customers. No separate consideration is charged at the time of replacement. This is because consideration for the same has been recovered at the time of supply of principal goods. Thus, tax on the same would have been paid at the time of principal supply of goods, as such costs are included in the price of principal goods sold. ITC on input and input services used to provide warranty services is available to the supplier.

Related Read: What Happens When GST Return Is Not Filed?

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Conclusion

The impact of GST on gift items varies based on the specific transactions, on the goods or services that are given free of cost to customers, distributors, employees, job workers, or any third person. 

In this regard, businesses must examine the same concerning GST law to avoid future litigation. However, when a given activity qualifies as a free sample / gift, ITC is not eligible to the supplier. Applicability of GST on free samples/gift items will depend on the contractual agreements between the parties involved.

Why Choose Incorp?

At Incorp, our dedicated team of experts shall assist you on various indirect tax levies, including Goods and Services Tax (GST). We can offer you experienced advice relating to nitty-gritty’s of your business; from GST of gifts/free-samples to filing ITC as well as e-invoicing GST, Incorp will be your one stop solution.

Our professionals have in-depth knowledge and wide-ranging experience to help you in the effective planning and structuring of your business to ensure compliance with the GST regulations.

Is GST applicable on goods distributed as free samples?

The goods that are distributed as free samples don not fall under the definition of supply and thus there is not GST applicable on it

What are the sections relating to GST applicability on gift/free samples?

Section 16 of the CGST Act provides and Section 17(5)(h) of the CGST Act are the sections relating to GST applicability on gift/free samples.

What is GST?

Goods and Service tax is an Indirect Tax imposed in India on the sale of goods or services.

What is the tax-free gift limit in India?

The tax-free gift limit in India for 2022 is Rs.50,000

Need help with navigating India’s tax system and GST regulations?

Contact our experts today!

GST on Renewable Energy Sector

by InCorp Advisory

Reading Time: 5 minutes

As per the latest statistics made available by the Ministry of New and Renewable Energy (MNRE), India has a total installed renewable energy capacity of 103.05 Gigawatt as of 31st October 2021. Ministry themselves have set an ambitious target of expanding the capacity to 175-Gigawatt capacity by 2022. Prime Minister Narendra Modi has set the national target of non-fossil energy capacity agreed at COP26 Climate Summit in Glasgow from 450 Gigawatt to 500 Gigawatt of renewable energy to be achieved by 2030. The various sources of renewable energy that contribute to this are:

Type 2021 (existing) 2022 (proposed) 2030 (proposed)
Solar energy 47.66 GW 100 GW 500 GW
Wind energy 39.99 GW 60 GW
Biopower 10.58 GW 10 GW
Small hydro 4.82 GW 5 GW
Total 103.05 GW 175 GW
Source: Economic Times

What do you mean by supplies of Renewable Energy devices?

Renewable energy supplies can be classified as either a supply of renewable energy devices and parts for their manufacture or a composite supply of these goods and their installation services. 

The renewable energy devices refer to the following:

Goods under Chapter 84, 85 or 94 Services under Chapter 99
Biogas plant Construction services, 

Engineering services, 

Installation services and Other technical services provided in relation to these goods.

It also includes maintenance services 
Solar power-based devices
Solar power generator
Windmills, Wind Operated Electricity Generator (WOEG)
Waste to energy plants/devices
Solar lantern / solar lamp
Ocean waves/tidal waves energy devices/plants
Photovoltaic cells, whether or not assembled in modules or made up into panels
Such other goods that may be used
Renewable Energy Certificates

What are the GST rates applicable for Renewable Energy devices?

GST on such renewable energy devices is applicable as below:

Type of supply 01/07/2017 – 31/12/2018 01/01/2019 – 30/09/2021 01/10/2021 – till date
Goods falling under Chapters 84, 85 or 94 5% 5% 12%
Any other goods Applicable GST rates
Pure Services 18%
Composite Supply (except maintenance services) 8.90%*

(70% of 5% + 30% of 18%)

 8.90%

(70% of 5% + 30% of 18%)

 13.80%

(70% of 12% + 30% of 18%)
Renewable Energy Certificates 12% 18%
Composite Supply (maintenance services / AMC) 18%
*Note 1: The GST rates for the period 01/07/2017 to 31/12/2018 are applicable in terms of the Composite Supply provisions i.e., the GST rate of the principal supply which in this case is the supply of renewable energy devices or parts which is taxed at 5%. However, the 45th GST Council meeting held on 17th September 2021 has explained that it shall be taxed in the 70:30 ratio though the relevant notification is applicable from 01st January 2019. And Circular No. 163/19/2021-GST dated 06/10/2021 states that if the GST paid for this period is higher than the 70:30 ratio then no refunds will be given for the excess tax payment made.

Can you claim Input Tax Credit (ITC) on the above supplies?

Main CriteriaManufacturers of Renewable Energy goods:

Businesses that manufacture Renewable Energy goods will be eligible to claim the ITC as available to subject to fulfillment of conditions in Section 16 and restrictions in Section 17. Usually, these manufacturers are solely indulged in the manufacture and sale of complete units such as Solar Panels, Wind turbine fans, etc.

Main CriteriaDealers /Contractors of Renewable Energy goods and services:

Businesses engaged in the procurement and installation of Renewable Energy goods and services shall be eligible for claim of ITC. There is a possibility of inversion of input goods and services in this regard, as the effective GST rate for supply is currently 13.80% whereas the procurement of goods not falling under 84, 85, or 94 and individual services may attract higher GST rates.

Optional CriteriaEnd customers of Renewable energy goods:
Businesses that obtain or procure renewable energy-related goods or services for their business will be eligible to claim ITC as follows:

A. Factories / Commercial buildings:

In the case of renewable energy units, set-up in factories or commercial buildings for captive generation of electricity, then the restriction of Section 17(5)(c) & (d) of CGST Act, 2017 for construction of buildings will not be attracted as such units can be treated on par with ‘Plant and Machinery’ and not ‘Building’.

B. Sale of captively generated electricity: 

In case the captively generated electricity is more than the requirement of the business entity, then any supply of such electrical energy goods is exempt under GST. Hence, common input tax credit incurred for such electricity generation including the ITC on the Renewable Energy units should be reversed in terms of Rule 42 for input goods and services and Rule 43 for capital goods.

C. Generation and sale of electricity:

In the case of businesses involved only in the generation and sale of electricity in the market, then the sale of electrical energy will be considered as the sale of goods as per notification no. 02/2017 dated 28/06/2017. Therefore, in Section 17(3) and Rule 42/43, the input tax credit incurred for such exempt sale shall be reversed accordingly. Hence, such input tax credit incurred will effectively be the cost of the project and will impact the pricing of the electrical energy as well. With the increase in GST rates by 4.9% on composite supply of renewable energy goods, the cost to such businesses for setting up the project has increased further.

D. In all other cases, ITC is eligible for claim as per Section 16 and Section 17 of the CGST Act, 2017.

Therefore, businesses engaged in Renewable Energy can claim input tax credit subject to such restrictions or reversals.

Let us look at the important judgments / rulings on Renewable Energy in GST

  • ITC claim and treatment of capitalized Solar Power Plant in the factory:

The ARA held that the solar power plant has to be fastened to the rooftop of the building and would require construction/erection of pillars for the same. Hence, it is ‘permanently fastened to anything attached to the earth’. Further, as per Section 17(5)(d) of the CGST Act, 2017, the solar power plant will be considered an immovable property but would qualify as a ‘Plant and Machinery’ and hence, is eligible for ITC claim under GST.

M/s. Pristine Industries Limited – Rajasthan AAR (No.- RAJ/AAR/2021-22/16 dated 13/09/2021)

  • Applicability of GST on supply of materials for the manufacture of Wind Operated Electricity Generator (WOEG): 

The ARA held that as seen from the Purchase Orders for the purchase of Stator Coil from the buyer and the Generator Supply agreement between their buyer and the end customer are needed to prove that the supply is for the manufacture of WOEG as per Para 11.3 of Circular No.80/54/2018 GST dated 31.12.2018. The onus is also on the Applicant to satisfy themselves that the supply is in the nature of WOEG supply. 

Comment: This AAR showcases that sufficient proof that the supply is intended for the purpose of WOEG is needed to classify the supply as WOEG and charge a concessional GST rate of 12%.

M/s. Coral Coil India Private Limited – Tamil Nadu AAR (No.- TN/40/ARA/2021 dated 30/11/2021)

  • Applicability of concessional rates to sub-contractors of solar power generation system:

The Advance Ruling Authority (ARA) of Karnataka had held that the benefit of concessional rates is available to sub-contractors as the notification does not distinguish between contractors and sub-contractors.’ Hence, the concessional rates are applicable to sub-contractors as well provided they are supplying for a solar power generation system.

Comment: This ARA’s ruling states that even sub-contractors can avail the benefit of concessional rates. However, proper care and precaution has to be taken in drafting of the contracts. Sub-contractors may also exercise additional safe-guards to ensure that the goods they supply are for construction of solar power generation system only.

M/s. Solarsys Non-Conventional Energy Private Limited – Karnataka AAR (KAR ADRG 120/2019 dated 30/09/2019)

  • Classification of a Waste To Energy Plant (WTEP) is based on the technical specification and not just the name of the product:

The Advance Ruling Authority (ARA) of Gujrat has held that to classify a product as a WTEP liable to a GST rate of 5% should be based on the technical specifications. Merely because the product has been presented as a WTEP does not qualify it for concessional rates. The product in question uses coal as fuel as stated in their website and the same has been deliberately withheld by the Applicant. Therefore, the applicable GST rate 18%.

Comment: The AAR shows that classifying supplies as Renewable Energy devices has to be backed by proper proof and even details such as technical specifications and details disclosed on the websites or other sources which is available to the public will be considered before providing concessional benefit. 

M/s. Isotex Corporation Private Limited – Gujrat AAR (GUJ/GAAR/R/74/2020 dated 17/09/2020)

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