Understanding the Union Budget 2024 from IFSC GIFT Perspective

Our GIFT City expert Meet Thakkar shares an in-depth analysis of the Union Budget 2024?

Understanding the Union Budget 2024 from GIFT Perspective

1. Expansion to include specified funds under tax exemptions in Section 10

• Retail schemes and Exchange Trader Funds (ETF) haven't gained traction due to unclear taxability.
• The proposed tax amendment aligns specified fund schemes with Category III IFSC AIFs for tax exemption, offering clarity to global fund managers and encouraging more retail schemes and ETFs in IFSC.

2. Exemption from levy of surcharge to specified funds

• Earlier, surcharge exemption was limited to dividend and interest income for specified funds in IFSC, except those set up as AOPs without all corporate members.
• It was now, proposed to extend the exemption to all specified funds

?

3. No burden for proving the source for Venture Capital Funds (VCFs)/ VCC

• Section 68 requires explaining the source of funds in an entity's books, but this doesn't apply to SEBI-registered VCFs.?
• The exception under Section 68 is extended to VCFs regulated by IFSCA.

?

4. Exemption for IFSC-registered FinCo from thin capitalization norms

• Section 94B limits interest expense deductions for Indian/foreign entities with permanent establishments in India on loans from non-resident associated enterprises.?
• It is similar to Indian financial institutions like NBFCs, banks, IFSC-registered finance companies which are now exempt from norms.

?

5. Exemption on specified income from Core Settlement Fund setup by recognised clearing corporations

• It has been proposed that the definition of ‘recognised clearing corporations’ under Section 10(23EE) be amended to include ‘recognised clearing corporations’ setup in GIFT IFSC.
• Due to the amendment, specified income from the Core Settlement Guarantee Fund in GIFT will be tax-exempt.

?

6. Short term capital gain tax rate increased to 20%

• For resident investors in IFSC, the tax on short-term capital gains on securities, equity-oriented mutual funds, and business trust units is now 20%.?

?

7. Long term capital gain tax rate increased to 12.5%

• The rate of long-term capital gains is proposed to be increased to 12.5% for categories of assets listed on exchanges at IFSC. Unlisted bonds and debentures will be taxable at the respective tax rates for resident investors in IFSC, whether short-term or long-term.

?

8. Simplification of FDI and Overseas investment norms

• The regulations will be amended under FEMA and RBI regulations accordingly to facilitate FDI and OI, push for prioritization, and promote opportunities for using the Indian rupee as a currency for overseas investments.?

?

9. Introduction of a Variable Capital Company (VCC) structure

• Under the existing regulations, the variable capital company concept, which is present in most offshore jurisdictions, is absent. It is proposed that regulations for allowing VCC structures which will increase flexibility for financing leasing (incl. aircrafts, ships) in IFSC and assist in pooling funds for PEs.

Other amendments/announcements in Budget 2024

• Taxation of buy-back proceeds as dividends for shareholders, which was earlier exempt.
• The corporate tax rate for foreign companies was reduced from 40% to 35%.
• Removal of angle tax provisions applicable to companies on receipt of consideration over fair market value for shares issued to its investors.
• Vivad se Vishwas Scheme, 2024 (Tax Amnesty Scheme) was introduced for faster disposal of pending litigations through a settlement.
• Abolition of Equalisation Levy on e-commerce supply or services in the background of the potential introduction of Pillar One and Pillar Two amendments.