Unlocking Opportunities: Exploring the Potential of GIFT City as a Financial Hub
Gujarat International Financial Tec-city (GIFT City) is an 886 acres multi-service Special Economic Zone (SEZ) with India’s first notified International Financial Services Center (IFSC) and an exclusive Domestic Tariff Area (DTA). It is positioned as a financial and technological hub designed to cater to customers outside the Indian jurisdiction.
First ideated in 2007, the core objective of the GIFT City was to develop a world-class zone for the long-term provision of office/service accommodation and high technological, economic, and commercial infrastructure. GIFT City offers state-of-the-art connectivity, infrastructure, and transportation access.
Legally, the IFSC is considered a delineated jurisdiction that provides financial services in foreign currency. Entities operating in the GIFT City have access to a robust regulatory framework, a business-friendly environment, tax exemptions, liberalised cross-border transaction services, and easy access to currency conversion facilities among others.
In 2019, a unified authority for regulating the financial services in the IFSC was formalised and the IFSC Authority (IFSCA) was established. Today, The IFSCA operates as a unified regulator for the development and regulation of financial products, financial services, and financial institutions in the IFSC in India.
Areas of business at GIFT City
GIFT City offers benefits to several areas of businesses that can be demarcated under two categories: financial services, and allied services. The financial service hosted at GIFT City hosts are:
A. Banking: GIFT City IFSC hosts banking units of Indian and foreign banks . Banking from an IFSC Banking Unit (IBU) is considered offshore banking due to the foreign island character of the IFSC. Key business activities permitted for IBUs are:
- Open foreign currency accounts of persons resident in India and persons resident outside India.
- Accept deposits from Qualified Individuals (QIs), Qualified Resident Individuals (QRIs) and other entities.
- Lend in the form of loans, trade finances and acceptances, commitments and guarantees, carry out credit enhancement, credit insurance, and sale and purchase of portfolios.
- Undertake inter-bank borrowings and lending.
- Undertake investments, including subscribing, acquiring, holding, underwriting or transferring securities or such other instruments, as may be specified by the Authority, as principal or agent.
B. Capital Market: GIFT City also provides for the delivery of capital market solutions to clients across the world . It also offers direct access to institutional and high-net-worth individuals looking to access equity, commodities, and currency derivatives markets. Following types of capital market intermediaries can operate in GIFT City. Stock Exchange, Commodity Exchange, Clearing Corporation, Depository, Stockbroker, Investment Advisor, Portfolio Manager, Mutual Fund, AIFs, Stockbrokers, Portfolio Managers etc. are permitted to be set up and provide services in GIFT City. IFSCA has allowed broker-dealers, clearing members, investment bankers, portfolio managers, amongst others to establish and provide these services,
C. Fund management: Fund management is another financial service that is hosted in GIFT City . Based on the category of license held by the Fund Management Entity (FME), it can launch any of the following schemes at the IFSC.
- Venture Capital Scheme
- Restricted Schemes (Non-Retail Schemes) offered under a private placement
- Retail Schemes of a minimum size over $ 5 million.
- Special Situation Funds
D. Insurance: Indian insurance companies and foreign insurers with a No-Objection Certificate from their home authority can set up an insurance office in the IFSC. These insurance offices can provide direct insurance for offshore direct insurance business including direct insurance business from global subsidiaries of Indian conglomerate companies/individuals present in any offshore location. It can also provide offshore reinsurance business of insurers present in any offshore location, insurers in the IFSC, and business emanating from India subject to Insurance Regulatory and Development Authority of India norms.
E. Financial Company: A finance company or financial unit is also permitted to operate in IFSC to provide core activities and non-core activities . Some of such activities are listed below.
- Lend in the form of loans, commitments and guarantees, securitisation, and sale and purchase of portfolios
- Factoring and forfeiting of receivables
- Undertake investments, including subscribing, acquiring, holding, or transferring securities
- Buy or sell derivatives
- Global/Regional Corporate Treasury Centres
- Merchant Banking
- Registrar and Share Transfer Agent
- Trusteeship services
- Investment Advisory services
- Portfolio Management services
The allied services hosted in the GIFT City range from Global In-House centres, aircraft leasing & financing, bullion exchange, foreign universities, and ship leasing.
Benefit of GIFT City for Startups
To promote innovation of ideas and solutions in financial services market, IFSC also introduced dedicated FinTech sandboxes . DPIIT recognised FinTech startups and other entities can operate in the regulatory sandbox of GIFT City. The regulatory sandbox provides a live environment with a limited set of real customers for a limited timeframe. The sandboxes offered to FinTech entities are:
- IFSCA FinTech Regulatory Sandbox,
- IFSCA FinTech Innovation Sandbox,
- Inter- Operable Regulatory Sandbox, and
- Overseas Regulatory Referral mechanism.
To become an eligible FinTech startup, apply for DPIIT recognition at: https://www.startupindia.gov.in/content/sih/en/recognition-page.html
Tax benefits of GIFT City
To attract businesses to GIFT City, the Government of India has introduced several direct and indirect tax benefits . Key tax benefits offered are listed below.
A. Direct Tax
- 100 per cent tax exemption for 10 consecutive years out of 15 years.
- Minimum Alternate Tax (MAT) at 9 per cent of book profits of company setup as a unit in IFSC. No MAT if the company opts for new tax regime.
- Dividend received by a non-resident or a foreign company from an IFSC unit will be taxable at a rate of 10 per cent.
- Tax-neutral relocation of offshore funds to GIFT City for fund transfer taking place before 31 March 2025.
B. Indirect Tax
- No Goods and Services Tax (GST) on services exchanged in IFSC, received by a unit in IFSC or services provided from GIFT City to India.
- State subsidies on lease rental, provident fund contributions, and electricity charged.
- Exemption for investors on Securities Transaction Tax, Commodities Transaction Tax, and stamp duty in respect of transactions carried out on IFSC exchanges.
GIFT City’s ambition to establish a world-class financial and technology hub is especially beneficial for growing startups. Its potential to attract significant foreign investment, business-friendly policies, and focus on innovation and entrepreneurship makes startups with exposure to international markets especially lucrative.
In a liberalised regulatory space like GIFT City within the resilient and solid Indian economy, startups operating in the financial sector can leverage GIFT City and avail operational and taxation benefits. As GIFT City continues to evolve and mature, it holds immense potential to reshape India's financial landscape, foster economic growth, and contribute to India’s journey towards becoming a global financial powerhouse.