Law & Society

IFSC – Continuing incentivisation towards an AtmaNirbhar Bharat.

In this article

Hon’ble Finance Minister Mrs. Nirmala Sitharaman announced new tax incentives for units under the International Financial Services Centre (IFSC) during the Budget 2021. This will allow international funds to relocate to India and avail tax exemption

In this article, we have NC Hegde and Zainab Bookwala from Deloitte Haskins & Sells LLP who discuss the amendments proposed to IFSC laws in the Union Budget 2021, aimed towards making India one of the key financial hubs in South Asia.


The government has been aggressively promoting the AtmaNirbhar Bharat mission for a resilient Indian economy. The Budget 2021 proposals were directionally oriented to serve this mission. The Hon’ble Finance Minister, Mrs. Nirmala Sitharaman, highlighted one such vision, to make the International Financial Services Centre (IFSC) in GIFT City a global financial hub. IFSC was set-up in the Gujarat International Finance Tec-City (GIFT City) to replicate an ecosystem of financial services in offshore locations where there are lots of tax exemptions, physically on Indian soil.

During the Union Budget of 2015, the then Finance Minister, Mr. Arun Jaitley had flagged the objective of setting up an IFSC in the GIFT City. The Finance Minister had indicated that the IFCs in Singapore and Dubai are largely manned by Indians and GIFT will provide opportunities for such people in India to showcase their talent.

Also, during the said Budget, another important amendment was made by way of insertion of section 9A, to encourage financial services entities and foreign funds to relocate their fund managers to India. This was another step with the intent to make India a financial hub. Section 9A provides for a special tax regime in respect of fund managers located in India of certain offshore funds. The said section provides that fund management activity carried out through an eligible fund manager, acting on behalf of an eligible investment fund, shall not constitute business connection in India.

However, certain conditions under section 9A of the Act are very rigorous and only a handful of funds could fulfill the criteria for availing the benefit under section 9A. Hence, these conditions needed relaxation, especially in relation to IFSC, so as to encourage more fund managers to move their activities to the IFSC in India. This could happen only if certain tax exemptions and relaxations are provided to international funds which will put the IFSC in India at par with certain IFCs in Singapore and Dubai.

Over the years there have been several amendments to make IFSC increasingly viable, such as abolition of DDT and long-term capital gains and reduction in MAT rates vide the Finance Act 2016, exemption from capital gains in relation to transactions in foreign currency pertaining to GDRs, bonds, derivatives on recognised stock exchange in the IFSC vide Finance Act 2018, tax holiday for units in IFSC under section 80LA of the Act, vide Finance Act 2019.


On the operational and regulatory fronts, International Financial Services Centres Authority Act, 2019 (IFSCAA) was constituted to govern IFSCs. Also, the International Financial Services Centres Authority (IFSCA) was formed with the holistic vision to promote ease of doing business in IFSC and to provide a world class regulatory environment. In October 2020, the government notified that Global In-house Centers (GICs) shall qualify as financial services and aircraft lease shall be considered as financial product under the IFSCAA subject to certain prescribed conditions. Thereafter, the IFSC Authority (Global In-house Centres) Regulations, 2020 were notified in November 2020. Also, in December 2020, IFSC Authority (Air Leasing) Regulations were issued for public comments. All these regulations are in line with the vision of the government to make IFSC GIFT an all-inclusive global financial hub.

In order to further boost the IFSC sector, following additional incentives have been proposed vide Finance Bill 2021:

  • Section 9A of the Act is proposed to be amended to relax certain conditions which shall be notified by the Central Government in relation to eligible investment fund under sub-section (3) or eligible fund manager under sub-section (4), provided the fund manager is located in an International Financial Services Centre and has commenced operations on or before the 31st day of March, 2024. This relaxation in the eligibility criteria shall ensure that more investment funds and fund managers can qualify to take the benefit of section 9A by relocating the operations of the fund to IFSC.
  • Section 10(4D) of the Act provides exemption in relation to income of a specified fund on account of transfer of capital asset referred to in section 47 (viiab), on a recognised stock exchange in IFSC and where the consideration is paid or payable in convertible foreign exchange, to the extent such income accrued or arisen to, or is received in respect of units held by a non-resident. This section has been proposed to be amended to extend the above exemption to investment division of offshore banking units to the extent attributable and computed in the prescribed manner.
  • Under section 10(4D) definition of investment division of offshore banking unit is to be inserted to mean an investment division of a banking unit of a non­-resident located in an IFSC and which has commenced operations on or before the 31 March 2024.
  • Further, the definition of “specified fund” in section 10(4D) is proposed to be amended to include the investment division of offshore banking unit which has been granted a category III AIF registration, is regulated by SEBI regulations and fulfils prescribed conditions including the condition of separate books for its investment division.
  • Also, it is proposed to exempt income accruing or arising, or received by a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit of IFSC which fulfils the prescribed conditions. The said exemption is provided vide insertion of sub-section (4E) to section 10 of the Act.
  • It is also proposed to provide exemption to non-residents in relation to any income in the nature of royalty on account of lease of an aircraft paid by a unit of an IFSC provided the said unit is eligible for deduction under section 80LA and has commenced operations on or before the 31 March 2024. The said exemption is proposed to be provided vide insertion of sub-section (4F) to section 10 of the Act.
  • Sub-section (23FF) is proposed to be inserted into section 10 of the Act to exempt income of the nature of capital gains, arising or received by a non-resident, which is on account of transfer of shares of a company resident in India by the resultant fund and such shares were transferred from the original fund to the resultant fund in relocation, if capital gains on such shares were not chargeable to tax had that relocation not taken place.

Based on the aforesaid amendments it is amply clear that the government is continuing its efforts to encourage foreign investors to relocate their operations / investment portfolio to the IFSC.


As the notification relaxing the conditions in relation to eligible investment fund and eligible fund manager shall be issued in due course, this amendment shall lead to greater number of foreign investment funds being eligible for setting up its operations in IFSC. Further, the exemption to non-resident lessor in relation to royalty payments for leasing aircraft to a resident Indian may encourage a number of Indian airline companies to consider substitution of their aircraft leasing activities with foreign leasing companies, to leasing companies located in the IFSC. While one may expect these welcome amendments towards making India become one of the key financial hubs in South Asia, in order to boost investor confidence and certainty besides facilitating ease of doing business, the Government can consider deeper integration of IFSC laws with applicable corporate and tax laws for seamless online approvals, governance and compliance management.

Article Contributors

Mr. NC Hegde is a Partner with Deloitte Haskins and Sells LLP

Ms. Zainab Bookwala is a Senior Manager with Deloitte Haskins and Sells LLP

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