Finance Minister Proposes Tax Incentives To International Financial Services Centre

Over the past few years several tax concessions have been provided to units located in the International Financial Services Centre (IFSC) under the Act to make it a global hub of the financial services sector.

In order to further incentivize operations from IFSC, it was proposed to extend the date for transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund in case of relocation to 31st March, 2025 from current limitation of 31st March, 2023.

Income of non-residents on transfer of Offshore Derivative Instruments (ODI) entered into with IFSC Banking unit is exempt under section 10 (4E) of the Act. Under the ODI contract, the IFSC Banking Unit (IBU) makes the investments in permissible Indian Securities.

Income earned by the IBU on such investments is taxed as capital gains, interest, dividend under section 115AD of the Act. After the payment of tax, the IBU passes such income to the ODI holders.

Presently, the exemption is provided only on the transfer of ODIs and not on the distribution of income to the non-resident ODI holders, hence this distributed income is taxed twice in India i.e. first when received by the IBU and second, when the same income is distributed to non-resident ODI holders.

Therefore, in order to remove the double taxation, it was proposed to amend clause (4E) of section 10 to provide exemption to any income distributed on the offshore derivative instruments, entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils conditions. It has also been provided that exempted income shall include only that amount which has been charged to tax in the hands of the IFSC Banking Unit under section 115AD.

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