The International Financial Services Centre (IFSC) at GIFT City in Gujarat has announced a slew of tax incentives for non-resident investors in its latest budget. The amendments to the Finance Bill, 2023, which were passed by the Lok Sabha on Friday, aim to make the IFSC more attractive and competitive as a global financial hub.
100% Tax Holiday for 10 Years
One of the major incentives is the extension of the 100% tax holiday available to non-residents for income from portfolio of securities in accounts in offshore banking units (OBUs) for a full 10-year period. This means that non-residents who invest in securities through OBUs in the IFSC will not have to pay any tax on their income, as long as it accrues or arises outside India.
Earlier, the 100% tax holiday was available only for a five-year period, followed by a 50% exemption for the next five years. The extension of the tax holiday is expected to boost the inflow of foreign capital into the IFSC and enhance its liquidity and depth.
10% Withholding Tax Rate for Dividends
Another incentive is the introduction of a beneficial withholding tax rate of 10% under Section 115A for dividends received by non-residents from IFSC units under Section 80LA. This is lower than the normal withholding tax rate of 20% applicable to dividends paid to non-residents.
The lower withholding tax rate will reduce the tax burden on non-resident investors who receive dividends from IFSC units and encourage them to reinvest their earnings in the IFSC.
Exemption from Filing ITR
The Central Board of Direct Taxes (CBDT) has also exempted certain non-residents and foreign investors from filing income tax returns (ITRs) for FY21 onwards, if they do not earn any income other than income from investment in specified funds, being Alternate Investment Fund Category III located in the IFSC .
This exemption will simplify the compliance requirements for non-resident investors who invest in specified funds in the IFSC and save them from the hassle of obtaining a permanent account number (PAN) and filing ITRs in India.
Exemption from Obtaining PAN
The government has also relaxed the requirement for obtaining PAN for foreign investors in the IFSC. Through a notification issued on May 04, 2021, the government has exempted foreign investors who invest through specified funds or OBUs in the IFSC from obtaining PAN, subject to certain conditions.
This exemption will facilitate the ease of doing business for foreign investors in the IFSC and remove one of the barriers to entry into the Indian market.
Conclusion
The tax incentives announced by the IFSC are aimed at making it more attractive and competitive as a global financial hub. The incentives are expected to boost the inflow of foreign capital, enhance the liquidity and depth of the IFSC market, reduce the tax burden on non-resident investors, and simplify their compliance requirements. The incentives are also in line with the government’s vision of making the IFSC a world-class financial centre that offers a range of services such as banking, insurance, capital markets, asset management, and fintech.