Screengrab of GIFT City infrastructure from website.
Credit: giftgujarat
Over the past decade, India has made significant progress in reshaping its financial sector, with Gujarat International Finance Tec-City (GIFT City) standing out as a key milestone in this journey. Established as India’s first operational smart city and International Financial Services Centre (IFSC), GIFT City offers a unique platform for global businesses and investors to tap into India’s economic growth.
GIFT City, located in Gandhinagar, Gujarat, is a government initiative aimed at positioning India as a global financial hub. It spans 886 acres and is home to state-of-the-art infrastructure, regulatory reforms, and a conducive business environment. The city operates under a dual regulatory framework, overseen by the International Financial Services Centres Authority (IFSCA) and other Indian financial regulators, ensuring streamlined operations, minimal red tape, and enhanced ease of doing business.
For overseas clients seeking diversified investment opportunities, GIFT City presents an attractive proposition. Let’s check them out.
Banking & financial services
Foreign banks and financial institutions can set up operations under the IFSC regime, benefiting from relaxed capital requirements and tax advantages. For individual investors, IFSC Banking Units (IBUs) offer attractive interest rates and access to global financial instruments.
Capital markets
GIFT City has its own stock exchange, India International Exchange (India INX), and NSE IFSC, which allows trading in a range of securities, including global stocks, bonds, and derivatives. Investors can take advantage of a 22-hour trading window that aligns with international markets, ensuring greater flexibility. Additionally, the exchange offers competitive transaction costs and exemptions from taxes such as stamp duty, making it an attractive option for both domestic and international investors.
Alternative investment funds (AIFs)
IFSC’s regulatory framework supports the establishment of alternative investment funds (AIFs), attracting high-net-worth individuals and institutional investors. AIFs based in GIFT City can invest in a diversified portfolio, including offshore funds, Indian startups, and private equity. More than 80 fund managers with commitments of $30 billion and investments of over $2.93 billion have set up funds at GIFT City in the last three years, highlighting the growing significance of the city as a financial hub.
Real estate
GIFT City itself offers lucrative real estate investment opportunities. Smart residential and commercial properties within GIFT City are expected to appreciate significantly as the area develops further.
Insurance & reinsurance
GIFT City has attracted leading global insurance and reinsurance players. International clients can explore innovative insurance products and participate in reinsurance operations to diversify their portfolios.
Benefits
One of the key benefits is its regulatory efficiency, with a single-window clearance system that helps reduce bureaucratic delays, making it easier for investors to navigate the complex regulatory landscape.
In addition, GIFT City offers highly competitive tax benefits that make it an attractive destination for overseas investors. Companies operating within the International Financial Services Centre (IFSC) enjoy a 100% tax holiday on business profits for any 10 consecutive years within a 15-year period, allowing them to maximize profits and reinvest in growth.
Further enhancing its appeal, the tax structure in GIFT City includes exemptions on securities transaction tax (STT), commodity transaction tax (CTT), and long-term capital gains tax. This tax-friendly environment, coupled with other exemptions and deductions, ensures that investors can achieve competitive returns.
For AIFs, the framework offers substantial tax advantages as well. AIFs in Categories I and II benefit from a tax pass-through status, meaning that investors are taxed as if they directly made the investments, while the AIF itself enjoys a ten-year tax exemption on business income. Non-resident investors are also exempt from filing tax returns or paying income tax on certain earnings. Additionally, Category III AIFs provide tax exemptions on income from specific securities for non-resident investors in India.
Fund managers in GIFT City enjoy a 100% corporate tax exemption for ten years and are also exempt from Goods and Services Tax (GST), further enhancing the city’s appeal as a premier financial hub for international investment.
Its strategic location, offering proximity to major Indian cities and robust global transport links, enhances global connectivity, which is a significant advantage for international investors. GIFT City also supports transactions in multiple currencies, facilitating international investments and providing currency flexibility.
Technologically, the integration of AI, blockchain, and fintech solutions ensures efficiency and transparency in operations, providing investors with a cutting-edge environment for their business activities.
Challenges & considerations
While GIFT City holds immense potential, overseas investors should consider certain factors. The regulatory environment, being relatively new, may continue to evolve, making it crucial for investors to stay updated on any changes. Investments in emerging markets also carry inherent risks, so comprehensive due diligence is advised to assess the market’s dynamics. Moreover, understanding India’s unique business practices and legal framework is essential for seamless operations and to avoid potential operational and cultural nuances that may arise in the course of doing business.Further entry level barriers, compliance hassles and paper work should be eased.
Regulatory advancements for NRI investments
Recent regulatory changes have significantly enhanced investment opportunities for Non-Resident Indians (NRIs) in GIFT City. The Securities and Exchange Board of India (SEBI) now permits foreign funds established in GIFT City to accept full investments from NRIs and Overseas Citizens of India (OCIs). This relaxation allows NRIs to hold up to 100% of a fund’s capital, a substantial increase from previous limitations. However, funds must provide detailed disclosures if they hold more than 33% of their equity assets under management in a single Indian group or if the fund, along with its investor group, holds over Rs 250 billion ($3 billion) in Indian equity assets.
Enhanced tax benefits
Companies operating within the International Financial Services Centre (IFSC) enjoy a 100% tax holiday on business profits for any 10 consecutive years within a 15-year period. Additionally, the Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are reduced to 9 per cent of book profits, compared to 15% in other parts of India. For investors, interest earned on loans extended to IFSC units by non-residents is tax-exempt, and dividends received by non-residents from an IFSC unit are taxed at a concessional rate of 10% plus applicable surcharge and cess.
(The author is Founder, Managing Director, and Sebi-registered Chief Financial Planner at Dilzer Consultants Pvt Ltd)