Every year the government of India introduces various measures to strengthen the regulatory framework in Gift city. In the Union Budget, specific tax benefits were introduced by the finance minister for units in the International Financial Service Centre (IFSC) to attract foreign investors and encourage offshore funds to relocate to India’s smart city.

This article helps you understand GIFT city’s tax benefits, structure, permissible services, and budget highlights.

What Is The GIFT City?

The Gujarat International Finance Tec (GIFT) City consists of 2 zones:

To make GIFT City a global hub for financial services and the government of India has been working along with various regulators. It is a developed area with state-of-the-art infrastructure, including power, water supply, transport, and housing. It is an ideal environment for you to set up your business.

What Is Gift City SEZ?

• SEZ is an area designated in Gift city where you may set up units to carry specific manufacturing and trading activities and provide certain services.
• The formation of a Special Economic Zone (SEZ), is governed by the Special Economic Zone Act, 2005 in India.
• It is considered a foreign territory which means that you need to treat the goods and services going into SEZ as exports and goods and services coming from the SEZ as imports.
• An SEZ aims to boost the economy by exporting certain goods and services.

What Is Gift City IFSC?

International Financial Service Centre (IFSC) is a multi-service SEZ in Gift city. IFSC is India’s first Offshore financial center. Currently, there are more than 125 licensed financial entities in IFSC. The key institutions permitted to set up an IFSC unit are the Banking sector, Insurance sector, and Capital Markets.

Features of IFSC are as follows:

• An IFSC is a jurisdiction providing financial services to both residents and non-residents, in foreign currency. It is considered as a person resident outside India for exchange control purposes.
• Such centers deal with flows of finance, financial products, and services across borders.
• It is a global financial platform aimed at providing easy access to the Indian economy, which is amongst the world’s largest and fastest-growing economies.
• In January 2017, Prime Minister of India, Narendra Modi inaugurated India’s first international exchange in IFSC. This exchange includes trading across all asset classes such as equities, currencies, commodities, and fixed-income securities.
• Further, in December 2020 regulations have been made to enable the setting up of India’s first International Bullion Spot Exchange.
• IFSC provides the very competitive cost of operations with various tax benefits, single-window clearance, relief under various company law provisions, international arbitration center with overall facilitation of doing business.

What Is The International Financial Services Centres Authority (IFSCA)?

International Financial Services Centres Authority was established in April 2020 under the International Financial Services Centres Authority Act passed by the Indian Parliament.

For the first time, the regulatory powers of four financial services regulators in India, namely:

• Reserve Bank of India (RBI),
• Securities & Exchange Board of India (SEBI),
• Insurance Regulatory Development Authority of India (IRDAI),
• Pension Fund Regulatory Development Authority of India (PFRDAI),

have been vested in IFSCA with respect to regulation of financial institutions, financial services and financial products in the IFSC, making it a unified regulator for the International Financial Services Centre in India.
In 2021, International Financial Services Centres Authority (IFSCA) became an associate member of the International Organization of Securities Commissions (IOSCO).

What are the services rendered in GIFT city?

Prime Minister Narendra Modi’s vision is to attract foreign business through GIF City. So, there’s an array of services that companies can indulge in. Gift city SEZs are specifically defined areas where you may set up your business unit for specified purposes of manufacturing, trading as well as rendering services. 

You can also provide warehousing facility services for specific goods. You can import and export services or carry on import-export activities of certain goods (subject to authorized operations).

Further, as SEZ is a foreign territory, the supply of goods or services by an Export Oriented Unit (“EOU”) or Software Technology Parks of India (“STPI”) unit is regarded as export. Foreign Trade Policy (“FTP”) regards supplies to SEZ as export of goods or services.

Gift city was established to facilitate business in the banking and insurance sector as well as capital markets. The following services are rendered:

• To raise funds for individuals, corporations, and governments.
• Asset management and global portfolio diversification are undertaken by pension funds, insurance companies, and mutual funds.
• Global tax management.
• Corporate treasury management operations.
• Risk management operations such as insurance and reinsurance.
• Merger and acquisition activities among multinational corporations.

On 10th February 2021, IFSCA has introduced a new framework to enable ancillary services. Based on this circular, the following ancillary services are permissible:

If you are a service provider you can also provide services to entities set up in the IFSC.

What are the tax benefits in GIFT city?

You can also enjoy the following tax benefits:

• Stamp Duty exemption
• Goods & Service Tax (GST) exemption
• No withholding tax (TDS) on interest payable to a non-resident by an IFSC unit on overseas borrowings
• 4 % withholding tax (excluding surcharge and cess) on interest on overseas borrowings. (Borrowings such as – long-term bond or rupee denominated bond listed on an IFSC stock exchange)
• The government has further granted various tax incentives to AIF (Alternative Investment Funds) setup in Gift City. The AIF’s may invest through the FDI (Foreign Direct Investment) or Foreign Venture Capital Investor (FVCI) route. Earlier AIF’s could only invest through the FPI (Foreign Portfolio Investor) route
• Tax incentives have been provided to non-residents investors investing in such AIF located in IFSC

What Were The Key Highlights Regarding GIFT City In Budget 2021?

The government aims to make GIFT city a global financial hub. The following reforms were announced in the budget:

• The finance minister Nirmala Sitharaman announced that a world-class fintech hub is under development in Gujarat’s smart city. This development will promote fintech firms and help them expand globally. It will also generate employment opportunities.
• The government has facilitated debt financing of REIT (Real estate Investment Trusts) and InvIT (Infrastructure Investment Trusts) by Foreign portfolio Investment (FPI)
• The budget mentioned special tax incentives for relocating foreign funds in the IFSC and exemption of dividends on REIT and InvIT
• In 2020, the aircraft financing and leasing business as a financial product under IFSCA. The finance minister mentioned that India is the world’s third-largest domestic aviation market. The budget introduced the following tax benefits to promote the aircraft finance and leasing industry in IFSC:
  • Capital gains exemption on income arising from aircraft leasing
  • Aircraft lease rentals paid to foreign lessors are tax exempt

The announcements mentioned above would help attract global players in the Fund business, aircraft leasing & financing business to set up their base in GIFT IFSC.

Conclusion

IFSC reinforces India’s strategic position as a global business hub for financial services. GIFT city has a lot of economic and fiscal benefits. It has been meticulously planned and structured to lure foreign investors and institutions. 

The government has introduced various reforms in every budget over the last few years to boost GIFT city. The aim is to be on par with other leading financial centers such as Dubai, Singapore, and London.

Why Choose Incorp?

At Incorp, we have the expertise and skills to guide you through the entire nuance of processes to avail the Gift city benefits. We are here to ensure peace of mind, from setting up your company in Gift City to staying compliant and managing your taxes on time with ease.

As we are all aware that, Charitable Organisations registered with the Income Tax Department must take fresh registration in accordance with the provisions of section 12AB, which was introduced by our Finance Minister in the Budget presented in 2020.

However, because of the prevailing circumstances it was deferred and was ultimately made effective from 01st April 2021. The rules framed for registration have been notified by the Central Board of Direct Taxes on 26th March 2021.

Let Us Take A Look At The Brief Summary Of The Said Rules Which Are As Under:

• The Application must be filed online in Form 10A/ 10AB along with supporting documents which are as under:
  • Copy of Charitable Organisation Deed/ Registration Certificate (Other than Trust)
  • Self-Certified copy of Certificate signifying the Authority under which the entity is registered.
  • Self-Certified copy of Certificate under Foreign Contribution (Regulation) Act (FCRA)
  • Self-Certified copy of existing Registration certificate under Income Tax
  • Copy of Audited Annual Accounts of Last 3 Years (FY 2017-18, 2018-19 and FY 2019-20). We must also keep Provisional Accounts for FY 2020-2021 ready.
  • Self-Certified copy of Modification or addition to objects of the Organisation.
  • Brief Note on Activities carried out by Charitable Organisation.
• The Pr.Commissioner shall pass an order in Form 10AC and issue a sixteen-digit alphanumeric Unique Registration Number (URN).
• If the Application is made on or after 01^st April 2021 the same shall be effective for FY 2021-2022.

What Are The New Provisions Related To The Filing Returns Pertaining To Donations Received By Charitable Organisations?

With regards to the issue of a certificate to the Donor by Charitable Organisation and filing of return pertaining to a donation received is concerned, new provisions were introduced. They can be summarised as under:

• New Return of All Donations received by Charitable Organisations shall have to be furnished in Form 10BD.
• The Information shall have to be furnished in a Consolidated manner, with respect to each of the Donors. Hence, total donations received from a particular Donor in a year will have to be furnished.
  For instance, suppose there are multiple branches and a person makes a donation at 4 separate branches, twice a year then in such a case, all the donations will have to be aggregated and the total amount received from such donor will have to be reported in Form 10BD.
• Accordingly, only one certificate shall have to be issued by Charitable Organisations to Donor in Form 10 BE specifying the amount received during the Financial year (multiple certificates are not required to be issued).
• Return under Form 10BD and Certificate of Donation under Form 10BE shall be furnished on or before 31^st May, following the financial year in which the donation is received.
• Following details of Donor will have to Mandatorily be collected:
  • Either PAN Card or Aadhar Card.
  • If the same is not available, then Tax Identification Number issued by Country of Residence/Passport Number/Electors Photo Identity/Driving License Number/Ration Card Number.
  • Type of Donation – Corpus/ Other than Corpus.
  • Mode of Receipt – Cash/Kind/ Electronic Mode/ Others.

Since the change is effective from 01st April 2021 it is essential that all the care is taken while accepting donations from Donors and all the details as required to be uploaded in Form 10BD are collected from the Donor.

What Are The Timelines For Completing The Process Of Re-registration?

The Time- Lines for completing the above process of re-registration, as prescribed under the Act can be summarized as under:

Existing Charitable Organisation (Making First Time Application under 12AB) –

• Application to be made: Within a period of 3 months beginning from 01st April 2021.
• Order to be passed: Within a period of three months.
• Validity: For a period of 5 years.

New Charitable Organisation Incorporated

• Application to be made: On or Before 28^th February preceding 01st April from which we intend to get the Exemption.
• Order to be passed: within a period of 1 month.
• Validity: For a period of 3 years
  (As per Rules framed it has been stated that, registration shall be effective from the year in which application is made, which is a welcome move (even though the act does not provide for it). Thus in our view, the benefit shall be granted to new Charitable Organisation from the year in which application is made)

Re-Registration/Switch from 10(23C) to 12AB or Modification of Objects –

• Application to be made: Within Six months before the expiry of the period.
• Order to be passed: within a period of six months.
• Validity: For a period of 5 years.

Why Choose Incorp?

The above-mentioned rules framed for registration have been notified by the Central Board of Direct Taxes on 26th March 2021. Re-registration of Charitable Organisations based on these new provisions is in effect from 1 April 2021. At Incorp, we have the expertise and skills to guide you through the entire process and thus maximizing outcomes for all the stakeholders.

Need Help With Navigating A Charitable Organisation’s Tax System And Regulations?

Remittance to Non-Resident

Any payment made to a non-resident or a foreign company is subject to various rules and regulations. As per provisions of Section 195 of Income tax Act,1961 any person responsible for paying money to a non-resident including foreign company shall deduct income tax for payment made to non-resident.

The remitter making payment to non-resident should furnish an undertaking in Form 15CA containing the information relating to payment of such sum along with certificate attested by Chartered Accountant in Form 15CB. Various aspects of the above compliance are covered as under-:

Part 1: Applicability

Form 15CA is a declaration by any person intending to make remittance:

• to non-resident or to foreign company (irrespective of whether remittance is subject to tax)
• by remitter who can be resident /non-resident/ domestic company/foreign company
• when income accrues/ arises/ received or deemed to accrue/ arise/ received in India (Section 5 of Income Tax Act).

Form 15CB is a certificate required to be filed by the Chartered Accountant when remittance is made

• to non-resident or foreign company is taxable and
• the payment exceeds Rs. 5,00,000/-; and
• when order/ certificate has not been received from Assessing Officer (AO).

Part 2: Non-Applicability

1. 1. When is Form 15CA not required?

• When the remitter makes remittance as per the specified list of payments in Rule 37BB of Income Tax Rules.
  (Refer: Income Tax Rules)
• Not applicable to an individual who does not require RBI approval as per Section 5 of the Foreign Exchange Management Act, 1999.
  Example: Mr. A remitted USD 1,25,000 to his son who went to Germany for higher educations. The amount remitted does not exceed the threshold limit of USD 2,50,000 therefore no RBI approval is required for such remittance and Mr. A is not required to file Form 15CA.

2. 2. When is Form 15CB not required?

• When the remittance is not taxable.
• If the income is taxable in the country of residence of the remittee.
• When the aggregate of remittances during the financial year does not exceed Rs. 5,00,000.

3. 3. Which are the specified payments where Form 15CA/15CB is not required?

   The following are the specified payments where Form 15CA/15CB is not required:

   » Indian investment abroad	» Loans extended to Non-Residents
   » Advance payment against imports» Imports by diplomatic missions» Intermediary trade	» Imports below Rs.5,00,000
   » Payment for operating expenses of Indian shipping companies operating abroad	» Construction of projects by Indian companies including import of goods at project site
   » Freight insurance	» Operating expenses of Indian Airlines companies
   » Travel under basic travel quota (BTQ)/ business travel/ pilgrimage/ medical treatment/ education	» Payments for maintenance of offices abroad
   » Remittances by foreign embassies in India	» Remittance by non-residents towards family maintenance and savings
   » Remittance towards personal gifts and donations	» Remittance towards donations to religious and charitable institutions abroad
   » Remittance towards grants and donations to other Governments and charitable institutions established by the Governments	» Contributions or donations by the Government to international institutions
   » Remittance towards payment or refund of taxes	» Refunds or rebates or reduction in invoice value on account of exports
   » Payments by residents for international bidding

   Part 3: Taxability

   1. 1. What is the tax treatment of the remittances?

   

   *In case if no PAN is furnished then TDS will be deducted at 20% (if details of remittee is not furnished as per Rule 37BC of Income Tax Rules) or relevant TDS rate whichever is higher.
   # Person can opt for Exemption method or Tax credit method whichever is beneficial.

   2. 2. What are TDS rates applicable?

   Nature of Payment	Foreign Company	Other than Foreign Company
   Long Term Capital Gains u/s 115E, 112, 112A	10%	10%
   Other Long-Term Capital Gains (excluding u/s 10(33) & 10(36))	20%	20%
   Short Term Capital Gains u/s. 111A	15%	15%
   Interest payable on moneys borrowed or debt incurred in Foreign Currency	20%	20%
   Royalty & Fees for technical services u/s. 115A	10%	10%
   Winnings from Lotteries, Crossword Puzzles and Horse Races	30%	30%
   Income by way of dividend	20%	20%
   Any Other Income	40%	30%

   3. 3. What are the rates of surcharge and education cess?

   Type of Payment	Income/Payment	Surcharge	Health and Education Cess
   Payments to Foreign Co.	Up to 1 crore	Nil	4%
   	1 crore > 10 crores	2%
   	> 10 crore	5%
   Payments to Non-Residents (Other than Foreign Company)	Up to 50 lakh	10%	4%
   	1 crore > 2 crores	15%
   	2 crore > 5 crores	25%
   	> 5 crores	37%

   Part 4: Compliance

   1. 1. What are the various parts of Form 15CA?

   

   2. 2. What is the procedure for filing Form 15CA and 15CB?

   

   3. 3. What are the details required to file the forms?

   

   Part 5: Frequently Asked Questions (FAQs)

   1. If A Ltd, Indian Company is making remittance to Mr. B, who is a resident of Australia of Rs. 3,80,000 /- then which form is applicable?

   Our view: If the remittance is not exceeding Rs. 5,00,000/-, then A Ltd needs to file Form 15CA- Part A and Form 15CB is not required since the amount is less than INR.500,000 /-

   2. If X Ltd, Indian Company remits money to Y Ltd, Foreign Company of Rs. 10,00,000/-, then what compliance is required to follow by X Ltd?

   Our view:

   • » In case if remittance is not taxable, then X Ltd needs to furnish details in Form 15CA- Part D and Form 15CB is not required.
   • » In case if remittance is taxable and order/ certificate is received from AO then Form 15CA- Part B is required to be furnish and Form 15CB is not required.
   • » In case if remittance is taxable and no order is received from AO, X Ltd will have to obtain certificate in Form 15CB from Chartered Accountant and then furnish details in Form 15CA-Part C.

   3. Mr A resident of Bhutan earned agriculture income of Rs. 60,000/- (land situated in Punjab). Mr A’s assistant (resident of India) remits agriculture income to Bhutan. Which form does Mr. A’s assistant need to file?

   Our view: As agriculture income earned is exempt from tax, therefore information needs to be furnished in Form 15CA- Part D and Form 15CB is not required.

   4. An Indian PSU, B Ltd is liable to pay fees for technical services to X Ltd., foreign company in USA. The fees payable is 4.5 million USD. Rate of exchange is Rs/ USD = 70. At which rate TDS should be deducted and what is the procedure for remittance? Can the form be cancelled and what is the period for cancellation?

   Our view:

   • » As India has entered DTAA with US, the rate of TDS will be 10% (excluding surcharge and health & education cess as per Income Tax Act) or 15% (as per DTAA rate) whichever is beneficial to remittee. Therefore, TDS will be deducted at 10% (excluding surcharge and health & education cess as per Income Tax Act).
   • » In case, if no PAN is furnished or details of X Ltd is not furnished as per Rule 37BC of Income Tax Rules, then TDS will be deducted at 20% (excluding surcharge and health & education cess as per Income Tax Act) or 15% (as per DTAA rate), whichever is higher. In this case TDS rate will be 20%.
   • » As remittance is chargeable to tax and total amount of remittance is more than 5 lakhs, T Ltd will have to obtain certificate in Form 15CB from a Chartered Accountant and then the information will be furnished in Form 15CA- Part C.
   • » Printout of the form electronically signed under digital signature needs to be submitted to the banker prior to remitting the payment.
   • » T Ltd can cancel the form within 7 days of filing Form 15CA.

   5. An Indian Company, R Ltd has imported electronics from foreign supplier. The goods are shipped to India and payment is required to be made to this supplier. What compliances are required by the Indian company?

   Our view: R Ltd does not require to file Form 15CA and Form 15CB as imports/advance payments are included in the list of payments specified in the list not required to furnish details under Rule 37BB of Income Tax Rules.

   6. If Mr. Sunil is remitting Rs. 3,00,000/- from India on account of medical treatment of his wife in Canada on 3rd May, 2020. What compliance is required?

   Our view: No, Mr. Sunil does not require to file Form 15CA as remittance made on account of medical treatment abroad is included in the list of payments specified in the list not required to furnish details under Rule 37BB of Income Tax Rules. Therefore, Mr. Sunil is not required to file Form 15CA /15CB. However, Mr. Sunil is required to furnish the following documents to authorised dealers under Liberalised Remittance Scheme:

   1. a. Form A2
   2. b. Application cum Declaration for purchase of foreign exchange under LRS
   3. c. Copy of PAN card

   7. What is the penalty for failure to furnish information or inaccurate information in Form 15CA/ 15CB?

   Our view: If a person fails to furnish information or provides inaccurate information in Form 15CA/ 15CB, then penalty of Rs. 100,000/- is levied.

    

   At InCorp, our Team provides seamless support with advisory services and assist you in complying with all the applicable laws and framework thereafter. Explore all our tax services and feel free to get in touch with our experts today.

Income tax is levied on the annual income of an individual or an entity. The period under Income Tax Act starts from 1st April and ending on 31st March of the next calendar year. The Income-tax Law classifies the year as (i) Previous year, and (ii) Assessment year.

Income tax on companies is called a corporate tax which is normally levied at a fixed rate. Whilst, a non-corporate assessee other than the firm has to pay income tax based on the slab rate.

Taxes are collected by the Government through three means:

• Voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self-Assessment Tax paid by the taxpayers,
• Taxes deducted at source [TDS] from the income of the receiver,
• Taxes collected at source [TCS].

Every year, Finance Act prescribes the income tax rates and TDS/TCS rates effective for the relevant assessment year to the previous year. Further, CBDT is empowered to issue notification and circulars to clarify and notify the rates and their changes.

According to the current income tax laws in India, we have summarized and tabularized all the income tax rates for FY 2020-21 (AY 2021-22) for your easy reference.

Part 1: Income Tax for FY 2020-21

1. 1. What is to be included for computing total income?

As per Section 5 of the Income Tax Act, 1961 the following income is included in total income:

• • Income received or is deemed to be received in India by or on behalf of such person; or
  • Income accrued or arise or is deemed to accrued or arise in India; or
  • Income accrued or arise outside India during such year.

2. 2. What are the Income-tax rates applicable for FY 2020-21?

As per Finance Act, 2020, following are the income tax rates incomes for FY 2020-21 (AY 2021-22):

I. In case of an Individual or HUF or Association of Person or Body of Individual or any other Artificial Juridical Person (other than senior and super senior citizen): 

II. In case of an individual who is a senior citizen (60 years or more at any time during the previous year):

III. In case of an Individual who is super senior citizen (80 years or more at any time during the previous year):

IV. In case of an Individual or HUF under new regime (only if the total income is computed without claiming specified exemptions or deductions other than mentioned in sub-clauses (a) to (c) of sub-rule (1) and serial no.11 to sub-rule 2 of Rule 2BB*): 

Rebate u/s 87A is available up to 100 percent of income-tax or Rs. 12,500, whichever is less for a resident individuals whose net income does not exceed Rs. 5,00,000.
In the case of (1) to (4), Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge. 

Surcharge:

V. Partnership Firm or LLP or Local Authority:

VI. Co-operative Society:

VII. Domestic Company: 

VIII. Foreign Company: 

Part 2: Tax Deducted at Source (TDS):

1. 1. What is TDS?

• Tax Deducted at Source concept was introduced in 2004 on the principle of ‘pay as you earn’.
• A person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
• The onus of deducting tax is on payer (who makes the expenditure) instead of actual taxpayer, that is, assessee under Section 192 to 194 of Income Tax Act, 1961.
• Deductor who deducts tax at source is required to furnish a certificate to the respective deductee specifying the amount deducted as tax along with all the other particulars.

2. 2. What are the TDS rates applicable?

Part 3: Tax Collected at Source (TCS):

1. What is TCS?

• The tax collected at source (TCS) is one of the methods of collection of tax by the government. This method follows the principle ‘Collect as it is being earned’.
• TCS is the tax payable by a seller which he collects from the buyer at the time of sale.
• Section 206C of the Income-tax Act governs the goods on which specific sellers have to collect tax from specific buyers.
• Tax collection at source is implemented to curb tax evasion and also to facilitate proper tax collection in India.

2. What are the TCS rates applicable?

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