Golden Future Ahead: Union Budget Boost to GIFT IFSC
With numerous legislative reforms, the government has shown a strong commitment towards achieving Viksit Bharat, or ‘Developed India’ by 2047. The Union Budget for FY 2024-25 introduced by Finance Minister Nirmala Sitharaman on July 23, 2024, brought significant changes to enhance ease of doing business in GIFT City, Gujarat, the International Financial Services Centre (IFSC). This Budget sets the stage for growth and development, providing a boost to entities aspiring to establish a presence in GIFT IFSC.
Strategic Incentives for IFSC Entities
Specified Funds
To attract foreign and domestic investors to IFSC and promote a vibrant funds ecosystem, the Budget proposed tax exemption benefits for funds regulated by IFSCA under the IFSCA (Fund Management) Regulations, 2022. This includes funds set up as retail schemes or ETFs. Such funds in GIFT IFSC will now enjoy tax exemptions similar to specified funds under Section 10(4D) of the Income Tax Act from FY 2024-25.
Angel Tax
The Budget abolished angel tax from FY 2024-25, eliminating hurdles for companies and investors and attracting higher foreign capital inflow to create a conducive environment for start-ups.
Finance Companies
Thin capitalisation rules relaxation will now apply to finance companies in IFSC from FY 2024-25, extending benefits available to banking, insurance, and NBFCs in India currently.
Clearing Corporations
The Budget widens the scope of exemption for Core Settlement Guarantee Funds (CSGF) earned by clearing corporations, extending the benefit to IFSCA-registered entities like India INX and NSE IFSC.
Venture Capital Fund (VCFs)
Relaxation on unexplained credits for VCFs in IFSC will now be applicable from FY 2024-25, ensuring a conducive environment for fund activities.
Variable Capital Company (VCC)
The Budget seeks approval for establishing private equity funds through a VCC structure, providing a cost-efficient and streamlined process for setting up new funds in IFSC.
Aircraft Leasing
Initiatives to foster aircraft leasing through GIFT IFSC will position it as an aviation hub, offering efficient financing options for aircraft leasing.
Ship Leasing
Reforms in ship leasing regulations will project IFSC as a new ship leasing hub, promoting ownership and leasing within the country.
Internationalisation of Rupee
The government aims to simplify rules and regulations to promote internationalisation of the Indian Rupee through GIFT IFSC, facilitating overseas investments using the rupee as a currency.
Climate Financing
Development of climate finance taxonomy in GIFT IFSC will enhance capital availability for climate adaptation and mitigation, supporting India’s climate goals and green transition.
Way Forward
The Budget reinforces the government’s commitment to establish GIFT IFSC as a global financial hub by aligning with international standards and creating a conducive regulatory environment for niche financial activities.
Stay tuned for clarifications on family investment funds, start-up incentives in GIFT IFSC, and taxation of insurance proceeds.