`Post the expiry of tax holiday period, the business income shall be taxed as the lowest rate of 15%. This is a shot in the arm and provides great certainty for clients looking at setting up their base in GIFT City (including for all the global reinsurers,fund management entities, investment advisors and service providers). This incentive further boosts the endeavour of the Government to make GIFT City as a international financial services centre in true spirit for all the international players”
New Delhi:In a major boost for the players, including global reinsurers, which are setting up operations in the GIFT City, India’s sole financial services centre(IFSC),the Government has continued strengthening the tax incentive regime for GIFT City.
After the end of 20 years these businesses will be taxed at a flat rate of 15per cent, the Budget-26-27, presented by Finance minister Nirmala Sithraman on Sunday proposed.
The tax boost for GIFT City comes as it is attracting increased interest from large global reinsurers. The Indian government is pitching the city as a gateway for global capital flows.
Foreign companies setting up units in Indian regions outside of Gujarat International Finance Tec‑City, or GIFT City, are taxed at a base rate of 35 per cent.
“This will encourage both global and domestic institutions to structure international financial services business within India’s own financial hub,” Dipesh Shah, executive director at the regulator for financial services at GIFT City told Reuters.
“Today’s announcement will provide long-term tax certainty and predictability to the IFSC (international financial services centre) ecosystem,” he added.
The Union Budget’s proposals to extend tax exemptions send a strong signal to global investors and significantly strengthen GIFT City’s position as an international financial services hub, said Sanjay Kaul, Managing Director and Group CEO of GIFT City, following the Budget announcement by the central government on Sunday.
“When someone has an option of going to some other financial center in the world, when they see that here you’re getting a 20-year tax break, they would definitely want to come in here first,” Kaul said, talking to ANI.
It was also proposed to rationalise the provisions of deemed dividend applicable to treasury centre in IFSC by providing that provisions of deemed dividend shall not be applicable, though with some riders.
These interventions by the government in the Budget, according to Kaul, is “very important” and are “very far-reaching”, helping global companies to come into Gift City.
“It (institutions globally) want clarity of rules and regulations, continuity of regulations, as well as it has to be on par with other jurisdictions,” he said, lauding the Budget announcements.
“Up to now what happened was they were a little reluctant to come because regulations, certain tweaks in the regulations were required. One example was the deemed dividend that was applicable. Now this has been done away in this Budget,” he said, referring to the proposal to rationalize the provisions of deemed dividend.
“The announcement is that the deemed dividend will not be applicable to these entities. So once this is not there, so intra-company lending or intra-company fund transfers will no longer attract tax which was there previously.”
He reiterated that these two fundamental steps are going to help Gift City increase its business in “a very big way.”
“Any global capital looks at two things, global positioning as well as what the regulations and governance are,” he supplemented. “There’s continuity of governance, policies, continuity is there. Regulatory benchmarks are at par with global centres and, of course, the tax concessions.
Rahul Jain, Partner, Khaitan & Co said the the Government has continued strengthening the tax incentive regime for GIFT City. The tax holiday period on business income earned by a unit in International Financial Services Centre has been increased from 10 to 20 years (out of a block of 25 years).
“Post the expiry of tax holiday period, the business income shall be taxed as the lowest rate of 15%. This is a shot in the arm and provides great certainty for clients looking at setting up their base in GIFT City (including for all the fund management entities, investment advisors and service providers). This incentive further boosts the endeavour of the Government to make GIFT City as a international financial services centre in true spirit for all the international players, he said.