Budget 2025 strengthens IFSC’s role as a global financial hub

Budget 2025’s proposals for GIFT City IFSC aim to strengthen its position as a global financial hub.

By Jaiman Patel

The Indian Union Budget 2025 introduces key proposals to further boost the International Financial Services Centre (IFSC) at GIFT City, Gujarat. The government’s focus is clear: to create a competitive and attractive financial hub that meets global standards. Through these amendments, the government aims to enhance India’s position as a key player in the global financial services landscape.

1. Rationalising the Definition of 'Dividend' for Treasury Centres in IFSC

A crucial amendment introduced in the budget pertains to the treatment of dividends in the context of corporate treasury centres located in IFSC. The current provisions of the Income Tax Act treat certain advances or loans to shareholders as deemed dividends if specific conditions are met. This has raised concerns that borrowings between group entities through IFSC could trigger unintended tax consequences. To alleviate this, the proposal introduces a specific carve-out for finance companies and finance units in IFSC, ensuring that advances or loans between group entities will not be treated as dividends. This will provide clarity for corporate treasury centres and help align IFSC-based businesses with global practices.

2. Simplified Regime for Fund Managers Based in IFSC

The budget also includes a proposal to create a simplified regulatory regime for fund managers located in IFSC. Currently, Section 9A of the Income Tax Act imposes certain conditions on eligible investment funds to ensure that their exposure to Indian resident investors remains below a set threshold. The new proposal seeks to relax these conditions, particularly for fund managers in IFSC, to allow them to operate more efficiently and competitively.

3. Exemption for Non-Residents' Income from Offshore Derivatives Instruments

In a bid to strengthen India’s position in global financial markets, the government has proposed extending the current exemptions on income from offshore derivative instruments. Clause 4E of Section 10 provides that income from the transfer of non-deliverable forward contracts, offshore derivative instruments, and related distributions with IFSC “bank” units will not be subject to tax for non-residents. The budget proposal now covers all types of IFSC units (such as AIFs) with an FPI license, further incentivising non-residents to transact through IFSC.

4. Inclusion of Retail Schemes and ETFs in Tax-Neutral Relocation Regime

The budget also proposes to broaden the scope of the tax-neutral relocation regime to include retail schemes and Exchange-Traded Funds (ETFs) located in IFSC. The relocation of original funds to a resultant fund within IFSC is currently a tax-neutral transaction, and this proposal extends that benefit to retail schemes and ETFs. The objective is to attract more investors to IFSC and encourage the relocation of funds, ensuring that such investments are not taxed when transferred.

5. Extension of Sunset Dates for Tax Concessions

One of the prominent changes in the budget proposal is the extension of the sunset dates for several tax concessions applicable to IFSC units. The government has proposed extending the deadline for commencing operations (aircraft/ship leasing, global funds, etc.) or relocating funds to the IFSC until 31st March 2030. This extension is expected to provide a significant cushion for businesses looking to set up or relocate operations to IFSC without losing out on tax incentives.

6. Exemption on Life Insurance Policies Issued by IFSC Insurance Offices

The proposal also seeks to enhance the competitiveness of insurance products provided by IFSC units. Currently, Clause 10D of the Income Tax Act provides an exemption on the sum received under a life insurance policy, subject to certain premium limits. However, these limits are seen as a barrier for non-resident policyholders, particularly those availing policies from IFSC-based insurance units. To address this, the government has proposed removing the condition on maximum premium limits for life insurance policies issued by IFSC insurance intermediaries. This change is expected to make IFSC a more attractive location for non-resident clients seeking life insurance products.

7. Incentives for Ship Leasing Units in IFSC

Expanding on the success of aircraft leasing, the budget proposal now includes provisions for ship leasing units in IFSC. Similar to aircraft leasing, ship leasing involves the creation of special purpose vehicles (SPVs) for safeguarding investors. To attract more business, the government has proposed extending the capital gains tax exemption on the transfer of equity shares for non-residents and IFSC units engaged in ship leasing. Moreover, dividends paid by companies engaged in ship leasing to IFSC shareholders will also be exempt from tax. These changes will take effect from 1st April 2025, aiming to bring more investment and leasing business to IFSC in this growing sector.

Conclusion

The Indian Budget 2025’s proposals for GIFT City IFSC aim to strengthen its position as a global financial hub by offering extended tax incentives, clarifying regulations, and removing barriers for foreign investors. With these changes, India is setting the stage for significant growth in the financial services sector, making IFSC an attractive destination for international business operations. With these amendments, IFSC is poised to become a key player in global financial markets.

(Jaiman Patel, Tax Partner – Financial Services, EY India.)

Views are personal and do not represent the stand of this publication.