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Zero Tax Benefits in GIFT City: All You Need to Know

Posted on April 2, 2025April 2, 2025 by Treelife

Overview of GIFT City

What is GIFT City?

Gujarat International Finance Tec-City, commonly known as GIFT City, stands as a premier business district in Gandhinagar, Gujarat, uniquely designed to meet global standards in business and technology. This integrated development aims to position India as a global financial hub by attracting financial and IT services companies from around the world.

The infrastructure of GIFT City is tailored for high-end corporate activities, featuring world-class facilities including an advanced telecommunications network, power plants, and water management systems, all designed to provide a seamless business environment. The city’s strategic importance is enhanced by its status as an International Financial Services Centre (IFSC), which allows it to operate under special economic and regulatory conditions, offering substantial tax benefits and simplified procedures.

Comprehensive Tax Benefits in GIFT City

Income Tax Exemptions

GIFT City offers an array of enticing income tax exemptions that significantly reduce the fiscal burden on businesses operating within its precincts. Key among these is the 100% income tax exemption for eligible businesses for a period of 10 consecutive years within the first 15 years of operation. This incentive is designed to foster rapid growth and ease the initial financial challenges faced by new entrants into the market. The flexibility to select the exemption years provides businesses with the ability to strategize their financial planning to maximize tax benefits based on their revenue cycles.

Reduced Minimum Alternate Tax / Alternate Minimum Tax

For companies considering a base in GIFT City, the reduced rate of 9% MAT / AMT are particularly compelling. While companies who have opted for beneficial taxation regime as per section 115BAA of the Income-tax Act, 1961 there is no applicability of MAT as well. However, for LLPs the 9% AMT continues to applyThis reduced MAT/ AMT rate bolsters profitability and enhances the competitive edge for businesses operating in international financial services.

GST and Customs Exemptions

GIFT City’s status as an IFSC also brings GST and customs duty exemptions, positioning it as a highly favorable destination for international trade and services. Services exchanged between units in GIFT City and their international counterparts are exempt from GST, which reduces operational costs significantly. Additionally, the import of goods and services into GIFT City for use in the operations of businesses is free from customs duties subject to certain conditions, making it an optimal site for companies that rely on international supply chains. These exemptions streamline the logistical and financial aspects of running a global business, allowing companies to operate with greater efficiency and reduced overhead costs.

The comprehensive tax benefits designed for businesses in GIFT City not only alleviate tax burdens but also strategically position the area as a dynamic hub for global financial services. By capitalizing on these benefits, companies can accelerate growth, maximize profitability, and enhance their competitive advantage in the global marketplace.

Income Tax Exemptions: Businesses enjoy a Zero-Tax i.e. 100% income tax exemption for 10 consecutive years out of the first 15 years of operation.
Reduced MAT / AMT rate: Entities benefit from a reduced MAT/AMT rate of 9% thereby allowing entities set up as LLP to upstream the profits further without any additional tax outflow.
GST and Customs Exemptions: Services between units in GIFT City and international clients are exempt from GST, and imports for business use are free from customs duties subject to certain conditions.

Other incentives

Moreover, entities engaged in the trading of specified securities on recognized stock exchanges within IFSC are exempt from Dividend Distribution Tax (DDT), further enhancing the post-tax earnings available for reinvestment or distribution to shareholders.

Sector-Specific Tax Incentives in GIFT City

Banking and Financial Services

GIFT City is strategically positioned to bolster the growth of banking and financial services with robust tax incentives. Banks and financial institutions operating within this zone benefit from income tax exemptions for 10 consecutive years, which can be claimed over any 15-year period from the date of commencement. This significant tax relief is designed to attract major global financial entities, fostering a vibrant financial services ecosystem within GIFT City.

Insurance and Reinsurance

For insurance and reinsurance companies, GIFT City offers a conducive regulatory and tax environment tailored to encourage sectoral growth. These companies benefit from a reduced effective tax rate and GST exemption on operations within GIFT City—including transactions involving reinsurance risk transfer and premium collection—making it a compelling destination for global insurers and reinsurers seeking to expand in the Asia-Pacific region. The simplified regulatory framework further enables greater operational flexibility. Additionally, Budget 2025 has proposed exemption for proceeds from policies issued by IFSC Insurance companies subject to certain conditions.

Fund Management

Fund Management Entities (FMEs) in GIFT City also enjoy substantial tax benefits. Management fees earned by FMEs from funds are eligible for a 10-year tax holiday (within a 15-year window), and such income is not subject to GST, making it highly efficient for asset managers. Moreover, non-resident investors in a Category III AIF or retail scheme based in GIFT IFSC are exempt from tax on income earned from specific securities, subject to conditions. These include income from:

Transfer of Indian securities (excluding shares of Indian companies)
Securities issued by non-residents without a Permanent Establishment in India
Offshore securities or specified securities traded on IFSC exchanges
Income from securitisation trusts taxable under “profits and gains from business”

IT and Tech Companies

GIFT City has become a hub for IT and tech firms, including startups, thanks to forward-looking tax regimes. These entities enjoy a 100% income tax exemption for up to 10 consecutive years within their first 15 years of incorporation. Additional benefits include capital subsidies and discounts on land and infrastructure as per the Gujarat IT/ITeS Policy (2022–27), fostering an ecosystem conducive to innovation and growth.

By offering these sector-specific tax incentives, GIFT City enhances India’s global competitiveness and reduces the cost of doing business, making it an attractive destination for diverse industries seeking long-term growth.

Banking and Financial Services: Banks and financial institutions enjoy income tax exemptions
Insurance and Reinsurance: Insurance entities benefit from reduced effective tax rates and GST exemptions on operations within GIFT City, enhancing the appeal for global insurance and reinsurance businesses.
IT and Tech Companies: Tech firms and startups are offered income tax exemption (100% for up to 10 consecutive years out of first 15 years of incorporation), along with subsidies as per Gujarat state government’s IT/ITeS Policy (2022-27).

Long-Term Financial Impact of GIFT City’s Tax Benefits

GIFT City in India has emerged as a formidable competitor to established global financial hubs such as Singapore and Dubai, primarily due to its extensive tax benefits and strategic geographic positioning. Unlike Singapore, where corporate tax rates hover around 17%, and Dubai, known for its tax-free environment but higher operational costs, GIFT City offers a balanced proposition with zero income tax for the first 10 years and significant reductions thereafter. This makes GIFT City an attractive destination for businesses looking to maximize profitability while benefiting from a rapidly growing financial services ecosystem.

Furthermore, while Singapore and Dubai both offer robust infrastructures, GIFT City’s state-of-the-art facilities are tailored specifically for financial and tech companies, providing a cost-effective base with access to the vast Indian and Asian markets. GIFT City’s comprehensive regulatory framework is designed to facilitate ease of doing business, mirroring the regulatory benefits seen in these other financial centers but with added fiscal incentives.

How to Leverage GIFT City’s Tax Benefits

Setting Up Business in GIFT City

Establishing a business in GIFT City offers substantial financial incentives, streamlined due to a well-structured process. Here’s a step-by-step guide to setting up your company in one of India’s foremost economic zones:

Determine Eligibility: Verify that your business model aligns with the sectors supported in GIFT City, such as finance, tech, or international trade.
Business Registration: Initiate the process by registering your business with the GIFT City Authority. This involves submitting a detailed business plan and undergoing a due diligence process.
Obtain Necessary Approvals: Depending on your business type, secure specific approvals from relevant regulatory bodies.
Infrastructure Setup: Choose from ready-to-use office spaces or custom-built facilities within GIFT City, which offers world-class infrastructure tailored to the needs of high-tech companies and financial institutions.
Tax Registration and Benefits Activation: Register for GST and other tax-related formalities to avail various tax exemptions and benefits.
Operational Setup: With infrastructure and approvals in place, you can move towards operationalizing your business, from hiring staff to integrating IT systems.
Continuous Compliance: Ensure ongoing compliance with GIFT City’s regulatory standards and guidelines, benefiting from continuous support from the GIFT City Service Bureau.

Following these steps will enable your business to leverage GIFT City’s strategic location and tax benefits, setting a strong foundation for growth and profitability.

Compliance and Legal Considerations

Setting up in GIFT City not only offers tax benefits but also requires adherence to specific legal and compliance standards:

Regulatory Compliance: Familiarize yourself with the IFSC Authority regulations, which are designed to be business-friendly yet ensure strict adherence to international financial standards.
Financial Reporting: Companies in GIFT City must adhere to international financial reporting standards, ensuring transparency and regular audits are conducted to maintain compliance.
Data Protection: Compliance with data protection laws is critical, especially for companies handling sensitive financial data, aligning with global standards like GDPR for European clients.
Anti-Money Laundering (AML) Policies: Implement robust AML procedures to prevent, detect, and report potentially suspicious transactions, which is crucial for maintaining financial integrity within GIFT City.
Employment Laws: While GIFT City offers flexibility in labor laws to attract international talent, companies must still comply with essential Indian employment regulations regarding wages, hours, and benefits.

Understanding and integrating these compliance and legal considerations into your business operations is vital for successful and lawful functioning within GIFT City. This strategic approach not only ensures regulatory compliance but also enhances business efficacy, contributing to a sustainable business model in one of India’s prime economic zones.

GIFT City, or Gujarat International Finance Tec-City, offers a compelling array of financial incentives designed to attract businesses and foster economic growth within its state-of-the-art infrastructure. As an International Financial Services Centre (IFSC), it provides significant tax benefits, including income tax exemptions, reduced MAT / AMT rates, and GST and customs duty reliefs. Businesses looking to establish operations in GIFT City can follow a streamlined setup process, from determining eligibility to obtaining necessary regulatory approvals and operationalizing their premises. Additionally, companies must adhere to strict compliance and legal standards, including financial reporting norms, data protection laws, and anti-money laundering policies, to ensure successful integration into this dynamic financial hub. These strategic advantages make GIFT City an attractive destination for companies aiming to expand their footprint in the Asian markets while benefiting from a competitive regulatory and tax framework.

GIFT City and its Tax Implications: A Deep Dive

Posted on May 20, 2024April 2, 2025 by Treelife

GIFT City: India’s Gateway to a Global Financial Future

The global financial landscape thrives on vibrant hubs that facilitate international trade and investment. India’s strategic response to this need is the Gujarat International Financial Tec-City, or GIFT City. This ambitious project is designed to propel India’s financial and tech sectors to the forefront, offering a compelling array of incentives and infrastructural advantages. Today, we’ll delve into the world of GIFT City, exploring its appeal, particularly for those seeking significant tax benefits.

Why Consider GIFT City for Your Business?

For businesses and investors seeking a tax-efficient and globally connected environment, GIFT City presents a compelling opportunity. Here’s a breakdown of its key advantages:

Tax Paradise: GIFT City’s status as an International Financial Services Centre (IFSC) translates to significant tax benefits for entities operating within it. These benefits translate to substantial cost savings and increased profitability. Units in the IFSC enjoy a 10-year income tax exemption, no Goods and Service Tax (GST) on services received, and exemption from capital gains tax on transfers of specified securities listed on IFSC exchanges. Dividend received by non-residents from IFSC units is taxable at a concessional rate of 10% plus applicable surcharge and cess.
Strategic Location and Global Ambitions: Situated near Gandhinagar, Gujarat’s capital, GIFT City enjoys excellent connectivity. It’s adjacent to Ahmedabad, a major industrial and historical hub, and boasts proximity to the Ahmedabad International Airport and the Delhi-Mumbai Industrial Corridor. This strategic positioning, coupled with a time zone advantage, makes it ideal for global operations.
A World of Opportunities: GIFT City caters to a diverse range of financial services and related sectors. Banks, capital market players, fund managers, insurance companies, and even global in-house centers (GICs) can all find a home here. Additionally, FinTech enterprises, foreign universities, and supplementary services are welcomed, fostering a dynamic and multifaceted ecosystem.

Understanding International Financial Services Centers (IFSCs)

Established under the Special Economic Zone (SEZ) Act, GIFT City serves as India’s first designated IFSC. These specialized zones offer a liberalised regulatory environment and tax incentives to attract foreign investment and participation in financial services. This fosters competition within the financial sector, ultimately benefiting businesses and investors.

Types of Businesses Eligible for GIFT City

The IFSC at GIFT City welcomes a wide range of businesses, including:

Financial Services: Banks, insurance companies, capital market players, fund management firms.
Global In-House Centers (GICs): Companies can establish GICs to handle functions like IT, finance, and accounting within GIFT City’s tax-efficient framework.
Support Services: Accounting, auditing, legal, taxation, and other professional services providers can leverage GIFT City’s infrastructure and benefits.
Emerging Sectors: FinTech companies, the International Bullion Exchange, ship and aircraft leasing firms are finding a supportive environment within GIFT City.

GIFT City Tax Benefits

GIFT City offers a treasure trove of tax benefits for businesses and investors seeking a cost-effective and globally competitive platform. Let’s delve into the GIFT City Taxation key advantages:

Income Tax Benefits

A) For units in IFSC:

100% Tax Holiday: Companies operating in GIFT City enjoy a complete tax exemption on business profits for any 10 consecutive years within a 15-year period. This allows them to maximize profits and reinvest in growth.
Reduced MAT/AMT: The Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are significantly lower at 9% of book profits compared to 15% in the mainland. This translates to considerable tax savings.
New Tax Regime Option: Companies opting for the new tax regime are exempt from MAT altogether, offering even greater flexibility.

B) For Investors:

Tax-Free Interest Income: Interest earned on loans provided by non-residents to IFSC units is not subject to any taxes in India. This incentivizes investors to park their funds in GIFT City.
Reduced Tax on Bonds: Interest income from specific long-term or rupee-denominated bonds listed on IFSC exchanges is taxed at a concessional rate of:
– 4% for bonds issued before July 1, 2023
– 9% for bonds issued on or after July 1, 2023

Investor Incentives

A) For units in IFSC:

Concessional rate for Dividend: Dividend received by non-residents from an IFSC unit taxable at a concessional rate of 10% plus applicable surcharge and cess.

B) For Investors:

Capital Gains Exemption: Gains from the transfer of specific securities by non-residents on IFSC exchanges are not considered taxable income in India. This eliminates a potential tax burden for foreign investors.

GST Implications

A) For units in IFSC:

GST-Free Services: Services rendered between IFSC units or provided to IFSC units, SEZ units, and offshore clients are exempt from GST. This simplifies tax compliance and reduces operational costs.

B) For Investors:

GST-Free Transactions: Transactions on IFSC exchanges, such as trading in securities, are not subject to GST, offering tax efficiency for investors.

Corporate Tax Rate

Entity	Corporate Tax Rate
For 10 consecutive years (within a 15-year period)	0%
After 10 Years	22% + 10% (surcharge) + 4% (cess)

Corporate tax rate for companies incorporated in GIFT IFSC who have opted for the concessional regime

Other GIFT City Taxation Benefits

State Subsidies: Units in IFSC can avail of state subsidies on various expenses, including lease rentals, provident fund contributions, and electricity charges, further reducing their operational costs.
Transaction Tax and Stamp Duty Exemptions: Investors benefit from exemptions on specific transaction taxes and stamp duty on trades executed on IFSC exchanges.
Reduced Withholding Tax on Interest: For overseas borrowings by IFSC units, the withholding tax on interest payments is reduced to 9% for long-term or rupee-denominated bonds listed on an IFSC stock exchange, compared to the standard withholding tax rate.

Additional Considerations

Alternative Investment Funds (AIF) Tax Benefits: AIFs Category I and II provide a tax pass-through status, allowing investors to be taxed as if they directly made the investments, while the AIF itself enjoys a ten-year tax exemption on business income. Non-resident investors benefit from not having to file tax returns or pay income tax on certain earnings. Category III AIFs offer tax exemptions on income from specific securities for non-resident investors. Additionally, fund managers in GIFT City enjoy a 100% corporate tax exemption for ten years and are exempt from Goods and Services Tax.
Tax Incentives for Non-Resident Investors: The government provides specific tax benefits for non-resident investors who invest in AIFs located in the GIFT City IFSC.

GIFT City and its Tax Implications: A Deep Dive 4

Unlocking Operational Efficiency in GIFT City

GIFT City goes beyond its initial focus on tax incentives. It has evolved into a comprehensive financial and business hub offering a range of operational advantages. These advantages are designed to streamline business processes and empower companies to function at their peak. Let’s delve into these key benefits:

Streamlined Approvals and Single-Window Regulator: GIFT City boasts a simplified regulatory framework. The International Financial Services Centre Authority (IFSCA) acts as a single point of contact, eliminating bureaucratic hurdles and expediting approvals for setting up and operating a business. This reduces administrative burdens and allows companies to focus on core activities.
World-Class Infrastructure and Uninterrupted Power Supply: GIFT City provides state-of-the-art infrastructure with cutting-edge technology and a robust power supply. This ensures seamless business continuity and minimizes operational disruptions.
Access to a Growing Talent Pool: GIFT City is attracting a growing pool of skilled professionals in finance, law, and accounting, exceeding 26,000. This readily available talent pool ensures businesses have the resources they need to thrive. The city’s proximity to IIT Gandhinagar and the recent establishment of campuses by Deakin and Wollongong University, both leading Australian institutions, further fuel the talent pipeline with top graduates.
Liberalized Currency Repatriation: Unlike the mainland, companies in GIFT City enjoy liberalized currency repatriation norms. This allows for the free movement of funds within permissible regulations, enhancing financial flexibility for businesses.
Strategic Time Zone Advantage: GIFT City’s strategic location places it between key financial centers like Dubai and Singapore. This advantageous time zone facilitates seamless communication and collaboration across different markets, allowing businesses to capitalize on global opportunities.

The Future of GIFT City

GIFT City in Gandhinagar, Gujarat, India, is rapidly emerging as a key player in the global financial landscape. Its attractive tax framework is a major driver of this growth, attracting businesses and investors seeking a competitive and efficient operating environment. The Indian government’s initiatives are solidifying GIFT City’s position as a global financial hub, offering a strategic location and strong regulatory framework.

Reduced Tax on Dividends for IFSC Units: Dividend received by non-residents from an IFSC unit taxable at a concessional rate of 10% plus applicable surcharge and cess
Concessional Withholding Tax: Non-resident investors earning interest income from long-term or rupee-denominated bonds listed on GIFT City exchanges benefit from a reduced withholding tax rate. This makes these bonds more attractive to international investors.
Tax-Neutral Fund Transfers: Recent amendments allow for the smooth transfer of offshore funds with no tax implications. This opens doors for greater participation from offshore funds.

Industry Optimism and the Road Ahead

These tax breaks, coupled with streamlined regulations and a world-class infrastructure, are fueling industry optimism about GIFT City’s future. 28 banks have already established a presence in GIFT City, recognizing its potential as a gateway to the Indian market.

Looking ahead, experts believe that continued government support and a clear long-term vision are crucial for GIFT City’s success. This includes:

Regulatory Clarity: Stakeholders are seeking further clarity on the scope and longevity of tax benefits offered by GIFT City.
Harmonization with Onshore Regulations: Streamlining regulations between GIFT City and mainland India will facilitate smoother business operations.
Enhanced Infrastructure and Living Standards: Developing a robust social and living infrastructure within GIFT City will attract and retain a skilled workforce and expatriate talent.

Conclusion: Unveiling the Gateway to India’s Financial Future

GIFT City’s journey is a testament to India’s ambitious vision for a world-class financial hub. By strategically leveraging tax benefits and a progressive regulatory environment, GIFT City is poised to become a magnet for businesses and investors seeking a globally competitive platform.

For businesses, GIFT City offers a compelling value proposition. The tax holidays, reduced tax on dividends translate to significant cost savings and improved profitability. Additionally, the world-class infrastructure and streamlined regulations ensure a smooth and efficient operational environment.

Investors, both domestic and international, can benefit from GIFT City’s tax-efficient ecosystem. The concessional withholding tax on bonds, tax-neutral fund transfers,. Moreover, GIFT City’s proximity to the vast Indian market allows investors to tap into its immense potential while enjoying the advantages of an international financial center.

GIFT City’s success hinges on its ability to adapt and evolve. Continued government support in terms of regulatory clarity and harmonization with mainland India will be crucial. Developing a robust social infrastructure and world-class living standards will further enhance its appeal to a global workforce.

GIFT City’s story is far from over. It’s an ongoing saga of innovation, collaboration, and unwavering ambition. As it continues to develop, GIFT City beckons businesses and investors to be part of this transformative journey. By embracing GIFT City’s potential, businesses and investors can unlock a world of opportunity in the heart of resurgent India.