India's Gift City IFSC: A Tax Haven for Financial Services Providers

Introduction

India's Gift City International Financial Services Centre (IFSC) in Gujarat has marked a groundbreaking milestone for the nation's financial sector. This ambitious endeavor demonstrates India's determination to establish a thriving IFSC that can rival global financial hubs such as London, Singapore, Hong Kong, and Dubai.

Recent developments in GIFT City

GIFT City has garnered approval from the Indian government as a Multi Services Special Economic Zone (GIFT SEZ) and serves as India's inaugural IFSC. Over the past two years, the benefits offered by the GIFT City IFSC to offshore financial market investors have become increasingly apparent and highly competitive.

With diverse industries such as banking, capital markets, fund management, insurance, bullion, and more, GIFT City provides a comprehensive ecosystem that fosters a conducive environment for various players in the financial services sector. The influx of esteemed institutions, including Morgan Stanley, MUFG Bank, and BNP Paribas, who have registered at the GIFT IFSC, highlights the growing appeal and recognition of this thriving zone.

Indirect Tax Perspective

From an indirect tax perspective, the GIFT City IFSC presents an irresistible value proposition for businesses in the financial services sector. Let's explore some key benefits:

1. Procurement of Goods or Services

Units operating within the IFSC are exempt from customs duty when procuring goods from outside India. This exemption significantly reduces the cost of acquiring necessary items from international sources, making it more cost-effective for businesses.

Goods or services obtained from the domestic tariff area (DTA) for authorized operations within the IFSC are treated as zero-rated supplies. This means that suppliers can provide goods or services without the need for payment of Goods and Services Tax (GST), further reducing operational costs.

Services or goods provided by other Special Economic Zone (SEZ) units to units in the IFSC are also considered zero-rated. This fosters seamless business activities and reduces the burden of GST, promoting a conducive environment for financial services providers.

1. GST on Supply by Units in IFSC

By establishing a unit in the IFSC, service providers engaged in offering services outside India can benefit from zero-rated supplies. These units have the option to export their services without any tax burden, providing a significant advantage for businesses. However, services provided to clients within the Domestic Tariff Area (DTA) would still be subject to GST, ensuring fairness and parity with domestic suppliers.

Conclusion

The IFSC at Gift City in India offers substantial indirect tax advantages for businesses operating within its jurisdiction. These advantages include exemption from customs duty on imported goods, zero-rated supplies of goods and services from the domestic tariff area, and zero-rated exports of services for units in the IFSC. These tax incentives create a tax-efficient environment, reduce the tax burden, and make the IFSC an extremely attractive destination for financial services providers.