Gift City: India’s Global Financial Playground — But With A Rulebook

Imagine a financial territory built not conscionable to service nan needs of a increasing economy, but to induce nan world successful connected India’s terms. That’s what GIFT City, aliases Gujarat International Finance Tec-City, has travel to represent. It’s India’s first operational greenfield smart metropolis and location to nan country’s first International Financial Services Centre (IFSC). But what makes it tick isn't its skyline aliases integer infrastructure it’s nan taxation and regulatory scaffolding that’s drafting successful world capital, 1 financial merchandise astatine a time.

For example, IFSC units are allowed a 100% income taxation exemption for immoderate 10 consecutive years retired of fifteen. This is not a broad vacation it’s a cautiously system inducement that gives businesses elasticity and room to grow. Add to this nan truth that non-residents investing successful specified securities tin bask complete superior gains exemptions, aliases that liking income from loans to IFSC units is tax-free for overseas lenders and you statesman to spot really nan metropolis is positioning itself arsenic a superior replacement to different offshore financial centres.

There are besides indirect taxation benefits: services to aliases from IFSC aliases SEZ units are exempt from GST, and transactions connected IFSC exchanges are free from securities transaction tax, commodity transaction tax, and stamp work resulting successful a leaner costs building for financial activity done nan city.The caller Budget reinforced this by extending cardinal taxation holidays for GIFT IFSC businesses until March 31, 2030, covering sectors for illustration finance banking, money management, and craft and vessel leasing. It besides broadened tax-neutral relocations to see ETFs and unit communal funds, allowing easier plus transfers from offshore jurisdictions without superior gains tax. Even participatory notes and derivatives from GIFT IFSC bask exemptions, giving world investors, particularly FPIs, added inducement to engage.

And yet, nary jurisdiction exists successful a vacuum.

As world taxation norms evolve, nan sustainability of immoderate of these incentives is coming into sharper focus. The astir contiguous situation is nan world implementation of Pillar Two of nan OECD’s BEPS framework, which seeks to enforce a 15% minimum effective taxation complaint for multinational enterprises. This could person an incremental taxation effect connected entities operating retired of GIFT IFSC, which presently bask little 9% MAT complaint aliases complete taxation exemptions. Units pinch constricted on-ground substance, that is, pinch minimal section labor aliases assets, whitethorn find themselves falling short of nan criteria needed to proceed enjoying these benefits without triggering top-up taxes abroad.Therefore, location is request to cautiously measure nan wide taxation effect of Pillar Two’s implementation and set their strategies accordingly.

Another nuance lies successful taxation conclusion astatine root (TDS). While nan wide taxation authorities is investor-friendly, nan TDS applicable connected definite home payments to IFSC units tin disrupt rate flows and effect moving superior availability. The existing mechanisms for claiming refunds aliases applying for little withholding certificates do help, but they besides adhd a furniture of compliance that immoderate firms particularly early-stage ones mightiness find burdensome.

For world investors, money managers, and NRIs, nan connection is clear: GIFT IFSC is simply a well-regulated launchpad into 1 of nan world’s fastest-growing economies. But to unlock its afloat potential, 1 needs to not only understand nan upside but besides publication into nan good print.

The writer is Partner astatine Thacker & Associates. Views expressed by nan master are his/her own.

Published on: Apr 22, 2025 6:38 PM IST