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Money Matters: Gujarat International Finance Tec-City gets cheaper, returns get higher

FM wants aircraft finance to come to GIFT City, provides exemption from capital Gains

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Finance minister Nirmala Sitharaman tried to make Gujarat International Finance Tec (GIFT) City more lucrative for investors in her maiden budget speech on Friday. 

She reduced the threshold of investment for reinsurers and provided tax relaxations such as extension of duration of benefits, extended capital gains benefit to certain category of alternative investment funds, extended the duration of dividend distribution Tax (DDT), exempted non resident individuals and institutions from capital gains over interest earned from loans to businesses operating out of International Financial Services Centre (IFSC) in GIFT City. 

She also proposed to make GIFT City a hub for aircraft leasing business. GIFT City officials claim that the measure will give GIFT City and edge over its rival IFSCs across the globe.

GIFT City is India’s only IFSC that enables foreign and Indian banks, non-banking financial institutions, stock exchanges and commodity exchanges, insurance companies, reinsurers and other financial institutions conduct transactions in foreign currencies in India. A part of GIFT City is a special economic zone (SEZ) enabling its units exemptions from central and state taxes.

“Key measures related to aircraft leasing business, reinsurance business and tax benefits, will enable significant offshore finance activities to take place from India and create jobs in the financial services industry. 

It will bring back billions of dollars of business which India has been losing to other competing global financial hubs. Setting up of a unified regulator has also been put on the fast track,” said Tapan Ray, MD and Group CEO of GIFT City.

A budget proposal aims to bring aircraft financing and leasing activities on Indian shores, .... leveraging the business opportunities available in India’s financial Special Economic Zones (SEZs), namely, International Financial Services Centre (IFSC).

“Government will implement the essential elements of the regulatory roadmap for making India a hub for such activities,” declared Sitharaman. “This is a very lucrative business, but done outside India. In January this year, we had proposed that this business should be brought to GIFT IFSC, said Dipesh Shah, head of IFSC at GIFT City.

A unit in the IFSC will now be entitled to deduction of 100% of profits for any 10 out of 15 years from the year of commencement. Till now they were allowed a deduction of 100% of profits for the first five consecutive years and 50% for the next five consecutive years from the year of commencement.

Non-resident individuals and institutions will also get tax exemptions for interest on loans to a unit located in IFSC. Companies and mutual funds are now exempt from DDT out of profits accumulated after April 1, 2017 from operations in IFSC. Till now DDT was available on the current year only. 

“No additional tax will be levied on the distribution of any amount, on or after September 1, 2019, by a specified Mutual Fund out of its income derived from transactions made on a recognised stock exchange located in any IFSC,” said the budget document.

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