The Union Budget 2025 introduces a series of measures aimed at enhancing the competitiveness and attractiveness of units in International Financial Services Centres (IFSC), with a particular focus on GIFT City. Recognizing the pivotal role of IFSCs in positioning India as a global financial hub, the government has proposed several amendments to the Income Tax Act, 1961, to incentivize businesses and investors operating within these centres.
Key proposals include extending sun-set dates for availing tax concessions, granting exemptions for insurance intermediary offices, and providing tax relief for ship leasing units in IFSCs. Moreover, the definition of “dividend” has been rationalized to facilitate treasury operations for group entities, and a simplified regime for fund managers has been introduced. Additional incentives target income exemptions for non-residents and tax-neutral relocation of funds to retail schemes and ETFs in IFSCs.
These amendments reflect the government’s commitment to fostering a conducive environment for financial innovation, ensuring that IFSCs remain competitive in the global financial landscape. The proposed changes not only encourage long-term investments but also streamline tax provisions, supporting the growth of diverse financial activities within IFSCs. This article delves into the detailed proposals, analyzing their potential impact on businesses and stakeholders operating in IFSCs.
Page Contents
- 1. Sun-set dates for availing several tax concessions to IFSC units extended:
- 2. IFSC Insurance intermediary office exempted from complying with the conditions with respect to amount of premium or the aggregate amount of premium
- 3. Exemption to capital gains and dividend for ship leasing units in IFSC
- 4. Rationalisation of definition of ‘dividend’ for treasury centres in IFSC
- 5. Simplified regime for fund managers based in IFSC
- 6. Additional incentive related to exemption of income of non-residents
- 7. Inclusion of retail schemes and Exchange Traded Funds (ETF)s in the existing relocation regime of funds of IFSC
1. Sun-set dates for availing several tax concessions to IFSC units extended:
In order to incentives setting up of units in in International Financial Services Centre (IFSC), GIFT City and to provide more time for commencement of operations to such units to enable them to avail several tax concessions, the sun-set dates under various section in the IT Act have been extended as under:
| Section | Brief Description | Current sun-set date | Proposed sun-set date |
| Section 80LA(2)(d) | Deduction of income from transfer of an aircraft or a ship leased by IFSC Unit | 31 March 2025 | 31 March 2030 |
| Section 10(4D) | Exemption of certain income attributable to investment division of Offshore Banking unit of a non-resident located in IFSC | 31 March 2025 | 31 March 2030 |
| Section 10(4F) | Exemption to royalty or interest Income of a non-resident on account of aircraft leasing or ship leasing, paid by a unit in IFSC | 31 March 2025 | 31 March 2030 |
| Section 10(4H) | Exemption to capital gains income of a non-resident or a unit of IFSC, engaged primarily in the business of aircraft / ship leasing, arising from the transfer of equity shares of domestic company, being a unit of IFSC | 31 March 2026 | 31 March 2030 |
| Section 47(viiad) | Tax-neutral relocation of funds to IFSC | 31 March 2025 | 31 March 2030 |
Section 10(10D) of the Income-Tax Act (IT Act) provides for limits on the amount of premium paid for claiming exemption for any amount including bonus received under life insurance policy other than on death of a person. It provides for a maximum limit of Rs. 2.5 lakhs with respect to annual amount of premium or aggregate of premiums payable for unit linked insurance policies, and Rs. 5 lakhs for life insurance policies other than unit linked insurance policies. It is proposed to amend section 10(10D) to provide that the proceeds received on life insurance policy issued by the IFSC insurance intermediary office including any sum allocated by way of bonus will be exempted from income tax without any condition related to the maximum premium amount payable on such policy. However, the condition stating that the premium payable for any of the year during the term of policy should not be more than 10% of the actual capital sum assured will continue.
3. Exemption to capital gains and dividend for ship leasing units in IFSC
It is proposed that, on the lines of aircraft leasing, any capital gains income of non-residents or a unit of an IFSC engaged in ship leasing, on transfer of equity shares of domestic companies being units of IFSC engaged in ship leasing will be exempt from tax under section 10(4H) of the IT Act.
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, it is proposed that dividend paid by a company being a unit of IFSC engaged in ship leasing, to a unit of IFSC engaged in ship leasing will be exempt from tax under section 10(34B) of the IT Act.
For the purposes of above proposed exemptions from capital gains and dividend, “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof.
4. Rationalisation of definition of ‘dividend’ for treasury centres in IFSC
Section 2(22)(e) of the IT Act provides that dividend includes any sum by way of advance or loan to a shareholder paid by a company paid, 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. It is proposed to amend section 2(22) to provide that any advance or loan between 2 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.
5. Simplified regime for fund managers based in IFSC
Section 9A of the Act provides that fund management activities carried out through an eligible fund manager in case of eligible investment fund, shall not constitute business connection of the said fund in India. One of the conditions at clause (c) of section 9A(3) 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. It is proposed that the said condition is relaxed for all the investment funds whether or not its fund manager is located 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 is not satisfied on either of the said days, it shall be deemed to be satisfied if it is satisfied within 4 months of the said days.
In order to further incentivize operations from the IFSC, it is proposed to amend section 10(4E) to provide that the income of a non-resident on account of transfer of non-deliverable forward contracts or offshore derivative instruments or over the-counter derivatives, or distribution of income on offshore derivative instruments, entered into with Foreign Portfolio Investors being an IFSC unit shall also not be included in the total income subject to certain conditions as may be prescribed.
7. Inclusion of retail schemes and Exchange Traded Funds (ETF)s in the existing relocation regime of funds of IFSC
The transfer by a shareholder or unit holder or interest holder of a capital asset being a share or a unit or interest held by him in a fund (that is the original fund) in consideration for the share or unit or interest in the resultant fund is an exempt transfer under section 47(viiad) of the IT Act. It is proposed to include retail schemes or Exchange Traded Funds (ETF) within the definition of resultant fund for the purposes of section 47(viiad) so that relocation of original funds to such funds in the IFSC is also a tax-neutral transaction subject to fulfilment of the conditions mentioned in 47(viiad).
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