Budget 2025: Tax Reliefs Extended for IFSC Units

Summary: The Union Budget 2025 proposes several key amendments to enhance the International Financial Services Centre (IFSC) ecosystem. The sunset date for availing various tax concessions under sections 80LA, 10(4D), 10(4F), 10(4H), and 47(viiad) has been extended to March 31, 2030. Life insurance policies issued by IFSC Insurance Offices will now be exempt under section 10(10D), without the premium threshold limits applicable elsewhere. Tax exemptions on capital gains and dividends have also been extended to ship leasing units within IFSC, in line with similar reliefs granted earlier for aircraft leasing. The definition of ‘dividend’ is rationalised for IFSC-based treasury centres to exclude certain intra-group loans. Section 9A has been amended to simplify fund management norms for IFSC-based and other eligible fund managers, with extended operational deadlines. Additionally, Exchange Traded Funds (ETFs) and retail schemes within IFSC now qualify as “resultant funds,” allowing tax-neutral relocation under section 47(viiad). Most provisions are effective from April 1, 2025. After seeing the growth of IFSC, following amendments are proposed in the Finance Bill 2025 in order to provide further relief to the IFSC:

Extension of sunset dates for several tax concessions pertaining to IFSC

The sunset dates for commencement of operations of IFSC units for several tax concessions, or relocation of funds to IFSC, in section 80LA(2)(d), section 10(4D), 10(4F), 10(4H) and section 47(viiad), is proposed to be extended to 31st day of March, 2030.

Exemption on life insurance policy from IFSC Insurance offices

Section 10(10D) provides exemption to sum received under a life insurance policy (including bonus), subject to the conditions specified therein. The said provisions are also applicable to insurance policies issued by IFSC Insurance Offices.

Provisos (fourth, fifth, sixth and seventh provisos) to the said clause, inter alia, provide that the exemption under the said clause is not available if annual amount of premium or aggregate of premiums payable is above Rs. 2.5 lakhs for unit linked insurance policies, and Rs. 5 lakhs for life insurance policies other than unit linked insurance policies.

In order to provide parity to non-residents availing life insurance from insurance office in IFSC vis a vis other foreign jurisdiction, it is proposed to amend the section 10(10D) so as to provide that proceeds received on life insurance policy issued by IFSC insurance intermediary office shall be exempted without the condition related to the maximum premium payable on such policy as mentioned above.

Exemption to capital gains and dividend for ship leasing units in IFSC

It has been represented that similar to aircraft leasing business, in the ship leasing business, separate special purpose vehicles (SPVs) are created for one or more vessels to safeguard the investors.

Therefore, on the lines of aircraft leasing, it is proposed to extend the exemption in,–

• Section 10(4H) to non-residents or units of IFSC engaged in ship leasing on capital gains tax on transfer of equity shares of domestic companies being units of IFSC, engaged in ship leasing.
• Section 10(34B) to dividend paid by a company being a unit of IFSC engaged in ship leasing, to a unit of IFSC engaged in ship leasing.

Rationalisation of definition of ‘dividend’ for treasury centres in IFSC

As per section 2(22)(e), dividend includes any sum by way of advance or loan to a shareholder paid by a private company, where shareholder is the beneficial owner of shares holding atleast 10% of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.

Section 2(22) excludes from the definition of dividend, any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company.

It is proposed to amend section 2(22) to provide that any advance or loan between two group entities, where one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services and the ‘parent entity’ or ‘principal entity’ of such ‘group entity’ is listed on stock exchange in a country or territory outside India, other than the country or territory outside India as may be specified by the Board in this behalf, shall not be treated as ‘dividend’. The conditions for a ‘group entity’, ‘principle entity’ and the ‘parent entity’ shall be prescribed.

Simplified regime for fund managers based in IFSC

Section 9A inter alia provides that the fund management activity carried out through an eligible fund manager acting on behalf of eligible investment fund shall not constitute business connection in India, subject to the conditions mentioned therein.

One of the conditions at section 9A(3)(c) inter alia provides that the eligible investment fund shall fulfil the condition that the aggregate participation or investment in the fund, directly or indirectly, by persons resident in India does not exceed 5% of the corpus of the fund.

section 9A(8A) inter alia provides that the Central Government may by notification specify that any one or more of the conditions specified in sub-section (3) or sub-section (4), shall not apply or shall apply with such modifications, in case of an eligible investment fund and its eligible fund manager, if such fund manager is located in an IFSC and has commenced its operations on or before the 31.03.2024.

It has been represented that there a need to provide a specific simplified regime for IFSC based fund managers, managing funds situated in other jurisdiction so that fund managers in IFSC are at par with the fund management entities in competing foreign jurisdiction.

It is proposed to amend the provisions of section 9A so that –

• The condition at section 9A(3)(c) is rationalised for all the eligible investment funds whether or not their eligible fund managers are based in IFSC, by determining the aggregate participation or investment in the fund as on the 1st day of April and the 1st day of October of the previous year and in case the said condition at clause (c) is not satisfied on either of the said days, it shall be provided that it will satisfy the same condition within four months of the said days;
• In view of the rationalisation above, the condition at section 9A(3)(c) shall not be modified for any eligible investment fund and its eligible fund manager; and
• The other conditions (a) to (m) can be relaxed for an eligible investment fund where the date of commencement of operations by its eligible fund manager located in IFSC for the purposes of section 9A(8A) is on or before 31.03.2030.

The aforesaid amendments in (a), (b), (c), (d), (e) is effective from 01.04.2025.

Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA

In order to further incentivize operations from IFSC, it is proposed to make the following amendments:

The existing provisions of section 47(viiad) of the Act provide that any transfer by a shareholder or unit holder or interest holder, in a relocation, of a capital asset being a share or unit or interest held by him in the original fund in consideration for the share or unit or interest in the resultant fund shall not be regarded as transfer for the purposes of calculating capital gains. The Explanation to the clause inter-alia, provides that “resultant fund” means a fund established or incorporated in India, which has been granted a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund, is located in any International Financial Services Centre and is subject to certain conditions provided therein. Thus, the relocation of original funds to the resultant fund in the IFSC is a tax-neutral transaction.

The income of retail schemes and Exchange Traded Funds (ETFs) located in the IFSC and, inter alia, is regulated under the International Financial Services Centres Authority Act, 2019 was granted exemption along with previously exempted specified funds as per section 10(4D) of the Act vide the Finance (No.2) Act, 2024. It is proposed to include such retail schemes or Exchange Traded Funds (ETF) within the definition of resultant fund for the purposes of of section 47(viiad) of the Act so that relocation of original funds to such funds in the IFSC is also a tax-neutral transaction.

This amendment will take effect from the 1st day of April, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

Analysis of overall changes for IFSC:

Here are the major changes in respect of IFSC.

• IFSC has been allowed certain tax concessions under sections as mentioned above but these exemptions are available only if the operation of IFSC is commenced upto a specific date. Such date for commencing business, in order to claim concessions, is now extended to 31/03/2030.
• This means that if IFSC commences operations by 31/03/2030, it will still be eligible to claim concessions as stated above.
• The exemptions available for ULIP for Insurance business in India under existing section 10(10D) is extended to non-residents taking insurance services from IFSC insurance offices. This exemption is applicable to non-residents without any limit of premium of Rs. 2.5 Lakh and Rs. 5 Lakh as given in 4^th, 5^th, 6^th and 7^th proviso to section 10(10D). Thus, this exemption is allowed to non-residents without any condition.
• Currently, non-resident of units of IFSC engaged in airline business is having 2 exemptions

1. 1. Capital gains on transfer of Equity shares of domestic company engaged in aircraft leasing
   2. Dividend received from such companies as mentioned in (i) above.
      These exemptions are now available for companies located in IFSC and engaged in ship leasing business.
      An amendment has been proposed to amend the definition of dividend in respect of advance or loan transaction between group entities located in IFSC, subject to conditions. If any Finance unit is set up as Global treasury unit in the IFSC, then the advance or loan transaction with parent entity listed on recognized stock exchange outside in a country as notified by CBDT is exempt from the definition of dividend.

• Earlier, eligible fund manager, located in IFSC and commencing operations upto 31.03.2024, providing its service did not constitute business connection in India if such service was provided to eligible fund (eligible fund not having more than 5% of holding of Indian resident).
• Now this exemption is also applicable to eligible fund managers based outside of IFSC unit and the limit of 5% will be checked on 01.04 and 01.10 of the previous year. This amendment will also apply on fund managers located in IFSC who has commenced their operations upto 31.03.2030.
• Earlier the relocation of resultant fund to IFSC was not considered as transfer under section 47(viiad). Now this amendment extends the scope of this section and retail schemes and Exchange traded funds are also covered under the definition of resultant funds and such relocation is not considered as transfer.