Budget 2023 Proposals for GIFT IFSC materialize: Implementation through clarity and notification
Gujarat International Finance Tec-City (GIFT) IFSC has been gaining prominence as India's premier International Financial Services Center. To further promoe and facilitate investment activities within GIFT IFSC, the Finance Ministry has taken active measures by issuing circulars and notifications that provide much-needed clarity on taxation matters and offer tax benefits to businesses operating within the IFSC. In this article, we will discuss two recent updates that highlight the Finance Ministry's efforts to foster a conducive environment for financial services companies in GIFT IFSC.
Taxability of income earned by a non-resident investor from off-shore investments
Earlier a CBDT Circular (4/2019 dated 03.07.2019) was issued to clarify the taxability of income earned by a non-resident investor from outside India (off-shore investment) routed through investment fund as defined in Explanation 1 (a) to Chapter XII-FB of the Income-tax Act,1961 (the Act). This Circular was made applicable to Category I or Category 11 Alternative Investment Funds (AIFs) regulated under Securities and Exchange Board of India (SEBI) regulations.
By Finance Act, 2023, the definition of 'investment fund' under the Act was amended to include reference to International Financial Services Centres Authority (Fund Management) Regulations, 2022 under International Financial Services Centres Authority (IFSCA) Act, 2019.
In view of the aforesaid amendment in the definition of 'investment fund', para 3 of
the Circular (4/2019 dated 03.07.2019) is to be read so as to include 'investment fund' registered with IFSCA.
TDS exemption for Aircraft leasing companies in IFSC
CBDT has issued a notification that provides a significant relief to companies engaged in the aircraft leasing business in Gujarat International Finance Tec-City (GIFT) IFSC. The notification exempts income tax deduction u/s 194 on dividend paid by units of IFSC primarily engaged in the business of leasing aircraft to another such unit in IFSC.
This follows the Union Budget 2023-24 where a clause was inserted in the Finance Act, 2023, to allow exemption in respect of dividend income earned by a unit in an IFSC engaged in the business of aircraft leasing provided the company paying dividend is also a unit in IFSC engaged in the business of aircraft leasing.
However, this exemption is subject to certain conditions.
The Payee shall:
Furnish and verify, a statement-cum-declaration in Form No. 1 to the payer giving details of financial year in which the dividend income eligible for exemption under section 10(34B) of the Act is payable.
The Payer shall:
Not deduct TDS on payment made or credited to the recipient of such dividend (payee) after the date of receipt of copy of statement-cum-declaration in Form No. 1 from payee
Furnish the particulars of all the payments made to the recipient of such dividend on which TDS has not been deducted in view of this Notification in the statement of deduction of TDS.
This notification is a welcome move for companies engaged in the aircraft leasing business in GIFT IFSC. It will reduce the tax burden on companies and increase their profitability. The exemption of income tax deduction on dividend paid will provide a significant relief to companies and encourage more companies to set up their units in GIFT IFSC.
If you are considering setting up your business in GIFT IFSC or seeking expert consultancy to navigate the regulatory landscape and tax benefits, look no further than Monik Advisors LLP. We can assist you in establishing your unit in GIFT IFSC, enabling your business to thrive and reach new heights in the global financial arena. Contact us today to unlock the full potential of your business in GIFT IFSC.
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