The recent Union Budget 2024
has introduced several significant updates related to GIFT City IFSC, aiming to
enhance its appeal and functionality as a global financial hub. Here are the
key highlights and implications:
Key Announcements:
1. Taxation of Retail Schemes and ETFs:
New Tax Regime: Retail Schemes
and ETFs in GIFT City IFSC will now be taxed similarly to Category III IFSC
AIFs (Specified Funds). This change is expected to attract global fund managers
to establish retail schemes and ETFs in the IFSC, fostering a more vibrant fund
management ecosystem.
No Surcharge on Advance Tax:
For IFSC-based Specified Funds, it has been clarified that no surcharge will
apply on advance tax, aligning with applicable tax rates.
Exemption for IFSC Finance Companies:
Similar to Indian financial institutions, IFSC finance companies are now
exempted from thin capitalisation provisions, which disallow interest expense
beyond 30% of specified earnings on borrowings from non-resident related
parties. This exemption will encourage the setup of finance companies,
particularly captive treasury units, in GIFT IFSC.
Variable Company Structure: Necessary
changes will be implemented to provide an efficient and flexible mode for
financing the leasing of aircraft and ships and pooled funds of private equity
through a ‘variable company structure’. This move aims to streamline and
enhance the financing leasing sector within the IFSC.
Promoting Finance Companies:
The exemption from thin capitalisation rules will make it more attractive for
finance companies to establish operations in GIFT IFSC.
Boost to Leasing Sector: The
introduction of a variable company structure for financing leasing will provide
more flexibility and efficiency, benefiting the aviation and maritime leasing
industries.
Unaddressed Expectations:
Relocation of Holding
Companies: The expected tax framework for the relocation of holding companies
to IFSC has not been introduced.
Taxation of Insurance Proceeds:
There is still a lack of clarity on the taxation of insurance proceeds received
from IFSC insurance companies.
The 2024 Union Budget introduces significant measures to enhance the attractiveness and operational efficiency of GIFT City IFSC. These changes are likely to bolster the fund management ecosystem, promote the establishment of finance companies, and streamline leasing operations. However, the absence of clarity on certain tax frameworks and provisions means that further refinements and updates are needed to fully realize the potential of GIFT City IFSC as a global financial hub.
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