The Union Budget 2024-25 has introduced several incentives to bolster the International Finance Services Centre (IFSC) at GIFT City in Gujarat, enhancing the “ease of doing business” and providing greater clarity for various financial instruments. The Budget has granted exemptions for retail and exchange-traded funds (ETFs), bringing them in line with Alternate Investment Funds (AIFs) and other existing funds, which is expected to stimulate growth in this sector, particularly focusing on Non-Resident Indians (NRIs) and foreign investors.
The introduction of the Variable Capital Company (VCC) Structure, a globally recognised vehicle for investment funds, is set to further enhance GIFT IFSC’s attractiveness. The exemption under Section 68, which seeks to tax unexplained cash credits, now applies to GIFT IFSC AIFs, rectifying a previous oversight and ensuring parity with SEBI AIFs.
Specified funds will now encompass those established or incorporated in India as trusts, companies, limited liability partnerships, or bodies corporate, which have obtained a certificate as a retail scheme or an ETF. These funds will be regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, and will enjoy the same exemptions as other specified funds.
Financial leasing
The Budget also outlined plans to seek legislative approval for more efficient and flexible financial leasing of aircraft and ships, and for pooled funds of private equity through a ‘variable company structure.’ This structure, common in financial hubs such as Singapore, Luxembourg, and Mauritius, will simplify the creation of new funds by allowing multiple funds to be created within the same structure and firewalled from each other, reducing costs and complexity.
Additionally, the Budget exempts Venture Capital Funds (VCFs) located in IFSC from having to explain the source of funds when extending loans or other amounts to assessees. This exemption aligns VCFs and Venture Capital Companies (VCCs) registered with SEBI in IFSC with other similar entities, removing a potential barrier to investment.
Despite these advancements, some anticipated reforms such as the tax framework for Overseas Direct Investments (ODIs) by non-banking units and clarity on taxation of insurance proceeds in IFSC remain pending. Nevertheless, the alignment of tax treatment for Retail Schemes and ETFs with Category III IFSC AIFs is expected to attract global fund managers and strengthen the fund management ecosystem.
