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Budget 2022: Tax Incentives to Promote IFSCs

08 Feb 2022

Budget 2022 tax incentives to promote IFSCs
The proposals in the Finance Bill, 2022 are reflective of the Government's intent to promote investment and participation in International Financial Services Centres.

The proposals announced in the Finance Bill, 2022 (Bill) underscore consistent efforts by the Government to incentivise participation in GIFT City, India’s first International Financial Services Centre (IFSC). The Finance Minister has announced that world-class universities and an international arbitration centre would be set up in GIFT City. On the tax front, several key proposals have been announced, including incentives aimed at encouraging portfolio management and ship leasing in IFSCs. Some of the key announcements are outlined below.

  • Exemption for income arising from offshore derivative instruments or over-the-counter derivatives

    Presently, subject to fulfilment of certain conditions, the income tax law exempts income arising to a nonresident from the transfer of non-deliverable forward contracts entered with an offshore banking unit of an IFSC.

    The Bill proposes to extend a similar exemption to income arising from the transfer of offshore derivative instruments or over-the-counter derivatives entered with an offshore banking unit of an IFSC.

  • Incentives to promote ship leasing

    Last year, the Government had introduced a provision exempting royalty or interest income arising to a nonresident on account of lease of an aircraft to an IFSC unit that commences operations by 31 March 2024. The Bill proposes to extend a similar exemption to royalty or interest income arising to a non-resident on account of lease of a ship to an IFSC unit that commences operations by 31 March 2024.

    Relatedly, a tax holiday is currently available for income arising to an IFSC unit that commences operations by 31 March 2024 on the transfer of an aircraft leased by it to any person. The Bill proposes to extend this tax holiday to income arising from the transfer of a ship leased by an IFSC unit as well, provided the unit commences operations by 31 March 2024.

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