IFSC has announced Tax Exemptions For Offshore Fund Management. India introduced several investment-friendly initiatives since 1991 and is one of the fastest developing countries in the world today because it grants special privileges like tax exemptions, healthy corporate ecosystems and access to a large consumer base. The government recognises that India makes an attractive hub for investment because of these benefits and the country's potential for future growth.

Tax Exemptions For Offshore Fund

Statistics testify to the effectiveness of these steps. According to reports, India attracted foreign investment of 81.72 billion USD in FY 2020 – 2021 – a figure which is 10% higher than the previous year there by making it an exceptional example among other countries that struggle with foreign investment. Meanwhile, China saw a decrease of foreign investment from previous ye`ars and had also curbed initial public offerings (IPOs). Reports show that during the peak period of the economic pandemic, Gujarat was the most popular state for domestic and foreign investors thanks to its innovative and generous investment policies. Furthermore, among those states who made it on the top 5 list are Maharashtra, Karnataka and Delhi NCR. The government is keen on taking this further and one proposed move is the development of GIFT City and IFSC in Gujarat

What Is GIFT City?

The City, which has been under construction for more than a decade, is rumored to become the next big financial hub after Singapore and New York. Even at this point in time, it seems The City has much potential to yield good results even if its infrastructure hasn't been fully developed yet. It may not have many significant landmarks yet but the ambitious project aims to focus on the development of eight hundred acres with sixty-two million square feet' worth of built-up area (or more than 67% of commercial space) and a little over twenty-two million square feet for residences located in about eleven percent of social spaces constructed as well. [2] It will notably consist of a conducive multi-service special economic zone as well as an exclusive domestic tariff area (DTA).

What’s the IFSC?

GIFT City is the first of its kind multi service SEZ in India. In this centre, firms dealing with foreign-currency transactions may function under a host of advantages on the condition that they do so within GIFT City’s perimeters. The government renamed this former crime hot spot Ahmedabad and transformed it into a financial center with services available for both locals and overseas investors alike. The IFSC will be home to expat workers wanting to invest in India as well as domestic companies selling to international markets.

GIFT City SEZ is India's first offshore financial centre to be designated an IFSC and the IFSC is India's first offshore financial centre. Currently, there are more than 125 licensed financial entities in IFSC and over the years it has witnessed dozens of vital regulatory developments. Some recent ones include the issuance of Indian and foreign insurers by IRDAI (Insurance Regulatory and Development Authority) in 2017, setting up India's first International Bullion Spot Exchange in 2020 and the issuance of the framework for aircraft operating leases by the IFSCA in 2021.

It also has demarcations for domestic and export-oriented units resident individuals are permitted to invest in foreign securities through IBUs. Recently, further light was shed on the status of tax exemptions regarding offshore fund management & offshore banking at IFSC in the Union Budget 2022. The Finance Minister emphasized that India's financial services companies are not alone anymore - there is an internal smart competition brought about by a newly formed free market in the form of IFSC which is intent on providing a very competitive cost of operations with various tax benefits.

Income Tax Exemptions to Promote Offshore Banking, Ship Leasing & Other Financing

The government is trying to encourage entrepreneurs and innovators in the financial sector. Taxes will be reduced, giving people more funds to keep them from going broke. The government also wants more people to start new firms. The Council on Foreign Relations (CFR), a think tank based in New York, stresses the importance of innovation for economic growth, especially in developing countries like India. According to CFR, a key challenge for India is moving away from low-tech manufacturing sectors towards high-tech knowledge industries such as computers and biotechnology…

Impact & Insights

The expected measures to give offshore fund managers sufficient breathing space with respect to structuring funds with investors by improving returns. With regard to the tax exemption incentives provided in IFSC, the financial services sector may be promoted in India and enhanced transactions using OBUs set up in IFSC. The incentives provided if other activities are likely to see a similar result.

In the ongoing Budget talks, the Government has been consistently providing incentives that encourage business organizations to set up units in IFSC, which at the moment is located in Gateway of India GIFT City. Keeping this trend in mind, the Union Budget 2022 also lists down a few proposals such as tax exemptions to boost financial growth of business houses by E-Commerce companies in and associated with IFSC.

The creation of state of the art infrastructure would further augment this initiative. Providing tax exemptions on various instruments issued by OBUs would attract non-resident investing in India, thus strengthening the Indian financial services sector. Incentivizing 'ship' leasing activity would boost shipping companies to carry out ship leasing through IFSC as against any other overseas jurisdiction with which India has a favourable tax treaty.