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State Bank of India (SBI), the country’s largest lender, has approached the Centre, seeking an extension of its 10-year tax holiday for its GIFT City unit, according to people familiar with the development. The tax holiday ends next year.
SBI was among the earliest banks to set up operations at the International Financial Services Centre (IFSC), which is in GIFT City. With the tax break ending, the bank will have to start paying corporation tax at rates comparable to its domestic operations.
The lender’s IFSC balance sheet has expanded meaningfully in recent years, buoyed by a surge in foreign currency borrowing. SBI’s GIFT City book now stands at around $10 billion, and the bank has also invested in constructing a new building within the financial hub. SBI did not respond to an email seeking comment until the time of going to press.
According to sources, without an extension of the tax incentive, the bank may be compelled to shift part of its business offshore. SBI and other early entrants spent four to five years in GIFT City with minimal activity, effectively losing several years of their tax window, they added.
Experts say an extension would be justified. “Earlymover banks played a pivotal role in establishing the GIFT City ecosystem. Many shouldered higher costs with limited early-scale benefits compared to later entrants,” said Suresh Swamy, partner, Price Waterhouse & Co-GIFT City.
“A measured extension of tax incentives for these pioneers would recognise their contribution, ensure competitive parity, and mitigate the risk of activity migrating offshore,” Swamy added.
SBI is not the only bank facing the issue — the tax holidays for Bank of Baroda, Yes Bank, and others expire in 2027. Any relief, experts say, would likely apply across the board. Sources indicated that the government is actively considering the industry’s request, with a possible announcement in the upcoming Budget.
Under current rules, entities operating in the IFSC are eligible for a 100 per cent corporate tax exemption for any 10 of their first 15 years. Most firms choose to avail themselves of the benefit once they have achieved meaningful scale.
However, some experts argue that a longer tax holiday is required to build globally competitive financial businesses at India’s only IFSC.
“Banks need time to scale their operations, and even though the 10-year block can be chosen from the first 15 years, it may still be inadequate. Some international financial centres offer significantly longer tax holidays. There is certainly a case for extending the period,” said Rajesh H Gandhi, partner, Deloitte Touche Tohmatsu India.
GIFT City has seen strong momentum over the past 12-18 months, aided by an improved regulatory framework under the International Financial Services Centres Authority (IFSCA), established in 2019. The regulator recently crossed the milestone of registering more than 1,000 entities across banking, reinsurance, asset management, and aircraft and ship leasing.
Banks in GIFT City have cumulatively disbursed more than $100 billion in foreign currency loans. The hub now hosts 35 banks, and one of every three dollars of external commercial borrowing is initiated from the IFSC.
Nearing expiry
- Firms operating in GIFT City enjoy 100% corporate tax relief for any 10 of their first 15 years
- Tax holidays for SBI and other early entrants are close to ending
- Lapse in tax benefits could push businesses to move activity offshore, slowing IFSC growth
- Experts call for long-term tax certainty to match hubs like Dubai and Singapore
