The Hon’ble Finance Minister Late Mr. Arun Jaitley while presenting the Union Budget for the year 2015-16, announced the establishment of Gujarat International Financial Tec-City (“GIFT City”), in Gujarat as India’s first International Financial Service Center (“IFSC”), a Greenfield Smart City developed on 886 Acres of land.
The proposal for India’s first IFSC was first mooted for Mumbai in 2007; however, the initiative couldn’t get started due to the global financial crisis in 2008.
At present, the world is witnessing the International Financial Centres (“IFCs”) at London, New York, Hong Kong, Singapore and Dubai. Indian is seen as the next most attractive economies and to enhance this and to give India a global position, the Government of India through IFSC is trying to create a global environment.
The GIFT SEZ has been set up in accordance with the Special Economic Zones Act, 2005 (“SEZ Act”), Special Economic Zone Rules, 2006 (“SEZ Rules”) and the regulations made there under. The Government of Gujarat through its undertaking Gujarat Urban Development Company Limited (“GUDCL”) has established “Gujarat International Finance Tec-City Company Limited” (“GIFTCL”). The GIFT City consists of a Multi Service SEZ and an exclusive Domestic Tariff Area (“DTA”).
The Government of India had approved the establishment of a unified authority for regulating all financial services in IFSCs through International Financial Services Centres Authority Bill, 2019 (“IFSC Authority Bill”). The IFSC Authority Bill received assent from the President of India on December 19, 2019 and has accordingly been formalized into Act in the year 2019 called the IFSC Authority Act.
The very purpose of Government of India to establish a unified financial regulator for IFSC is to provide a world-class regulatory environment to market participants from an ease of doing business perspective.
IFSC Authority assumed powers over other financial service regulators i.e. RBI, SEBI, IRDAI and PFRDA of regulating financial institutions, financial products, and services in IFSC at GIFT City exercisable by IFSCA from 1st October 2020
Financial service regulators
- IFSCA (Banking) Regulations, 2020,
- IFSCA (Finance Company) Regulations, 2021,
- SEBI (IFSC) Guidelines, 2015,
- IRDAI (Registration and operations of IFSC Insurance offices (IIO) Guidelines), 2017,
- IRDAI (Registration and operations of IFSC Insurance Intermediary offices (IIIO) Guidelines), 2019
Exchange control regulators
- FEM (IFSC) Regulations, 2015
- FEM (Foreign currency accounts by a person resident in India) Regulations, 2015
- FEM (Transfer and issue of foreign security) Regulations, 2004
Key activities in IFSC
Participants in GIFT-IFSC can broadly be categorised on the basis of business activity intended to being undertaken by the entity.
- Stock exchanges
- Trading members
- Segregated Nominees Account providers
- Clearing corporations
- Depositories and
- Other intermediaries
- Corporate Banking
- ECB Lending
- Servicing JV/WOS of Indian Companies registered abroad
- Factoring / forfeiting of export receivables
- General Insurance
- Life Insurance
- Captive Insurance
- Insurance intermediaries
- Alternate Investment fund (AIFs)
- Mutual funds (MFs)
- Portfolio management services
- Investment advisors
- Legal, Accounting and Audit
- Research and Analytics
- Fund Accounting
- Risk Management etc.
Tax incentives available to units in IFSC
- 100% tax exemption for 10 consecutive years out of 15 years.
- MAT / AMT @ 9% of book profits applies to Company / other setup as a unit in IFSC.
- MAT not applicable to Companies in IFSC opting for new tax regime.
Transfer of specified securities such as Bond, GDR, Foreign currency denominated bond, Rupee denominated bond of an Indian Company, Derivatives, units of MF, units of Business trust, units of AIF and Foreign currency denominated equity shares of the Company, listed on IFSC exchanges, by a non resident is not treated as transfer. Any gain accruing thereon is not chargeable to tax in India.
First such corporate entity listed on NSE IFSC Exchange is Dr. Reddy’s Laboratories Limited followed by PSU such as Indian Renewable Energy Development Agency Limited, NTPC Limited, Power Finance Corporation Limited and REC Limited.
No GST on services received by units of IFSC and provided to IFSC / SEZ units.
Other taxes and duties
Exemption from Securities transaction tax (STT), Commodity transaction tax (CTT), Stamp duty in respect of transactions carried out on IFSC exchange.
Treatment of IFSC units
Financial Institution being a branch or entity in IFSC is treated as a ‘Person resident outside India’.
Provisions under the Companies Act, 2013
Companies Act is applicable to all entities established in the GIFT City. However, Ministry of Corporate Affairs exempted various provisions of the Companies Act to entities established in GIFT City. Some of the exemptions are as follows:
- an IFSC private company will only be limited by shares;
- all such companies have to suffix International Financial Services Centres or IFSC in their names;
- an IFSC companies can make private placement offers and will not be restricted by earlier offers which haven’t been completed or withdrawn;
- an extract of the annual return of the company will not have to be included in the board’s report.
- IFSC companies will not have to comply with the secretarial standards prescribed by the Institute of Company Secretaries of India.
- CSR provisions are not applicable for a period of 5 years from the commencement of business.