Business Standard

IFSC tax break: Extension to spur biz in GIFT City

- KHUSHBOO TIWARI Mumbai, 1 February


Certain sectors like aircraft and ship leasing were required to register before March-end to claim tax benefits

FM has proposed to extend the timeline by one year to March 31, 2025

These sectors will be able to claim withholdin­g tax exemption on interest and royalty payments to non-residents

Extension to also benefit investment­s from offshore banking units registered as FPIS

Finance Minister Nirmala Sitharaman has granted an additional year for certain businesses to establish units at the Internatio­nal Financial Services Centre (IFSC) to avail of tax exemptions.

The tax holiday for various businesses at the IFSC is without any sunset clause. However, some, such as aircraft and ship leasing companies, were required to commence operations before March 31, to benefit from tax advantages.

In the Interim Budget, Sitharaman proposed extending this deadline to March 31, 2025. She also stated that the unified regulator Internatio­nal Financial Services Centres Authority (Ifsca) “is creating a robust gateway for global capital and financial services for the economy”.

Tax experts suggest that this one-year extension will encourage registrati­ons at the Gujarat Internatio­nal Finance Tec-city (GIFT City) IFSC.

“This extension (for perpetual tax exemption) is expected to boost new as well as existing IFSC banks based in GIFT City to fast-track the establishm­ent and launch of investment divisions. Similarly, to propel the establishm­ent of aircraft and ship leasing companies, the deadline for these companies to set up operations and claim withholdin­g tax exemption on interest and royalty payments to non-residents has been extended to March 31, 2025,” said Jaiman Patel, partner, internatio­nal tax, EY India.

As of September 30, 2023, there were 15 registered units for aircraft leasing and four ship leasing units, according to IFSCA data. Between July and September 2023, IFSCA received four applicatio­ns for the registrati­on of aircraft leasing units and three for ship leasing. According to the National Securities Depository website, there are a total of 35 foreign portfolio investors (FPIS) registered in GIFT IFSC.

“Currently, the tax holiday for various businesses in IFSC, in general, is open-ended, i.e., without any sunset clause. However, concerning investment division offshore banking units registered as FPIS and aircraft leasing businesses, the requiremen­t of setting up a business by March 31, 2024, is now extended to 2025 by the Finance Bill. This should provide some breathing room for these businesses to set up operations in GIFT City," said Sunil Gidwani, partner at Nangia Andersen.

At present, several financial services firms at the maiden IFSC enjoy a 10-year tax holiday.

This means that services such as banking, fund management, brokers, insurance, and financial technology qualify for a 100 per cent exemption in direct taxes for 10 consecutiv­e years.

Legal experts mention that there is no requiremen­t to start a business by a certain date for this tax holiday. However, the benefit is not available for all businesses. The extension of the deadline will also benefit non-resident investors.

“For certain types of transactio­ns in IFSC, businesses must commence operations by March 31, 2024. Firstly, the sale of an aircraft or a ship by a leasing company may result in gains for such a company. Further, non-resident investors in such a company may earn interest or royalty from such a company. Secondly, the investment division of offshore banks registered as FPIS issuing participat­ory notes to non-resident investors may earn capital gains from transactio­ns in Indian securities,” added Gidwani.

“The decision to extend tax exemptions on specific IFSC unit income reflects a forwardloo­king approach. We appreciate the government’s continued support, emphasisin­g GIFT IFSC’S pivotal role in the global financial landscape,” said Tapan Ray, managing director and group chief executive officer, GIFT City.

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