Union Finance Minister Nirmala Sitharaman in her maiden Budget on Friday announced several tax benefits in a bid to boost investments at the international finance service centre (IFSC) near Gujarat International Finance Tec-City (Gift-City), Ahmedabad.
A major benefit to businesses operating in the GIFT City at Gandhinagar is in the form of doubling the tax holiday to 10 years, apart from exemption from dividend distribution tax (DDT), exemptions on capital gain to alternate investment funds (AIFs) and interest payment on loans taken from non-residents.
Currently, an IFSC unit is allowed deduction of 100 per cent of profits for the first five consecutive years and 50 per cent for the next five consecutive years from the year of commencement. Sitharaman proposed to hike this to a 100 per cent profit-linked deduction under the Section 80 LA in any 10-year block within a period of 15 years from the date of commencement.
The Budget also proposed speeding the enactment of legislation to create an IFSC authority, which will outline a contemporary regulatory structure for such financial hubs.
GIFT City Group Chief Executive Officer (CEO) and Managing Director (MD) Tapan Ray said: “Today’s Union Budget has re-emphasised the importance of GIFT IFSC as an emerging global financial services hub. The setting up of unified regulator will further put GIFT IFSC in a fast-track mode.” The proposal to have one regulator for GIFT City was made long back by the Reserve Bank of India.
Other business opportunities for the IFSC outlined in the Budget include aviation financing and leasing, and insurance securities markets. Gift City’s international business at present is around $56 billion comprising around $22 billion by the banking units, another $30 billion by insurance units, and the stock exchanges set up there do daily volumes of $4 billion or so.
Experts feel this can grow four-five-fold in the next two-three years. “Extending income tax exemption to 10 years from five years and exempting dividend distribution tax is very much welcome,” said V Balasubramaniam, MD and CEO of India International Exchange IFSC (India INX).
He said over the next few years, GIFT IFSC alone could contribute $1 trillion to Indian industry and infrastructure and help achieve the $5-trillion GDP target over the next few years.
Further, to facilitate on-shoring of international insurance transactions and to enable opening of branches by foreign reinsurers in the IFSC, it is proposed to reduce net-owned fund requirement from Rs 5,000 crore to Rs 1,000 crore. This will also incentivise Indian companies’ business going abroad to come onshore.
Sitharaman has also proposed tax exemptions for interest received by a non-resident in respect of money sent to a unit in IFSC.
Exemption in capital gain to non-resident on securities traded on GIFT-based stock exchanges has been extended Category-III AIF or hedge funds in IFSC provided all the unit holders are non-residents, subject to certain other conditions.
At present, DDT is not levied on the distribution of dividend by a company located in IFSC if the same is distributed out of current income. This is proposed to be extended to distribution out of accumulated after April 1, 2017 from operations in IFSC. Even mutual funds in the IFSC will not attract additional tax on distribution of any amount, on or after September 1.Gold shines on duty hike, nears Rs 35,000
Soon after the Finance Minister proposed a hike in Customs duty on gold and silver to 12.5 per cent from 10 per cent, the price of yellow metal on the MCX for August futures jumped from Rs 34,215 per 10 grams to Rs 35,100 per 10 grams, up by 2.85 per cent. Prices of silver for September futures, too, rose from Rs 37,660 per kg to Rs 38,940 a kg, up 3.4 per cent. Prices, however, were down by 5 pm with gold futures shedding Rs 200 per unit and silver Rs 550 per unit. In Mumbai, spot market standard gold closed at new all time high of Rs 811 or 2.4 per cent higher at Rs 34,739 per 10 gram and silver closed Rs 660 or 1.8 per cent up at Rs 37,925 per kg.
The surprise duty hike annoyed the industry. World Gold Council's India MD Somasundaram PR said, "The hike will impede efforts to make gold as an asset class particularly when gold prices are already rising globally. In addition, the grey market will thrive which will dilute efforts to reduce cash transactions."
Cigarette stick gets costlier by a paisa
The Budget proposed excise duty on cigarettes and tobacco products, but analysts say this would not impact the prices much. From a ‘nil’ duty earlier, excise duty of Rs 5 per 1,000 is imposed on filter cigarettes of up to 75 mm and non-filter cigarettes of up to 70 mm. On other cigarettes, duty has been raised to Rs 10 per 1,000. “This implies a hike of 0.5 paise per stick for below 75 mm and 1 paisa per stick above this size of threshold," said Abneesh Roy, executive vice-president, Edelweiss Securities. The Budget also proposed to expand excise net on hookah, chewing tobacco and other tobacco products with a levy of just 0.5 per cent. Smoking mixture for pipes and cigarettes will attract a levy of 10 per cent from ‘nil’ earlier.