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Benefits Of Setting Up A Business Entity At GIFT City

by InCorp Advisory

Reading Time: 4 minutes

The Government of India (GoI) had launched India’s first International Financial Service Centre (IFSC) in Gujarat at GIFT City in April 2015. With the launch of the IFSC at GIFT City, the GoI had taken the first step to bring financial services transactions which are relatable to India, back to India. International Financial Services Centre (IFSC) is an initiative by the government of India (GoI) intended to encourage foreign capital to participate in India’s growth journey.

IFSC provides an opportunity to global businesses at GIFT City to set up wide variety of business verticals in Aircraft Leasing, Ship craft leasing, Banking, Insurance, Stock Exchange ,AIF etc by setting company/LLP/Subsidiary in GIFT City.

Benefits of setting up a business entity at the GIFT City

GIFT City IFSC offers a range of infrastructural, operational, fiscal & tax benefits which make it an attractive destination for businesses and investors, fostering growth and development. The various benefits are listed as under:

A) Infrastructure and Administrative benefits in GIFT City IFSC

1. Ease of doing business: By providing single window clearance, IFSC units can take all necessary approvals under one umbrella (allotment/planning/construction/occupancy) which is useful for IFSC units to set up business in an easy manner.

2. Duty relaxation: Exemption from stamp duty and registration charges provided by IFSC for setting up business entity at GIFT City.

3. Incentives: Development incentives offered by Gujarat Government like Capital Subsidy, employment generation incentives etc to encourage the business setup in GIFT City.

4. Setting up: Plug & play infrastructure, facilitating quick and hassle-free business setup.

5. Cost efficiency: Sustainable development model with a potential 20% reduction in operating costs.

6. Gujarat IT/ITeS Policy incentives: EPF reimbursement, lease rental subsidy, power subsidy, etc.

Related Read: A Complete Overview Of IFSC Gift City And Tax Benefits

CLICK HERE

B) Fiscal Benefits in GIFT City IFSC

1. Income tax benefits:

For Units in IFSC:

  • 100% tax exemption for 10 years out of a 15-year block period
  • IFSC Unit has the flexibility to select any 10 years out of 15 years block
  • Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) at 9% of book profits applies to IFSC Companies /other setup as a unit in IFSC (Not applicable to IFSC companies in GIFT city opting for new tax regime)
  • Dividend paid to shareholders of company in IFSC: From 01 April 2020, dividend income distributed by Companies in IFSC to be taxed in the hands of the shareholder.

For Investors:

  • Interest income paid to non-residents on money lent to IFSC units in GIFT city is not taxable, and long Term or rupee-denominated bonds listed on IFSC exchanges are taxable at a lower rate of 4%.
  • Transfer of specified securities listed on IFSC exchanges by non-residents is not treated as a transfer, and gains arising from such transfers are not taxable in India.

Related Read: Why GIFT City Is The Better Destination For Stockbrokers

CLICK HERE

2. Goods and Services Tax (GST) benefits:

For Units in IFSC:

  • No GST on services: (i) received by unit in IFSC. (ii) provided to IFSC / SEZ units, Offshore clients.
  • GST applicable on services provided to Domestic Tariff Area

For Investors:

  • No GST on transactions carried out in IFSC exchanges

3. Other taxes and duties:

For Units in IFSC:

  • State subsidies are available for IFSC units like lease rentals, provident fund contributions, and electricity charges.

For Investors:

  • Exemption from Security Transaction Tax (STT), Commodity Transaction Tax (CTT), and stamp duty for transactions carried on IFSC exchanges.

C) Operational Benefits in GIFT City

1. Exemption from currency control regulations for IFSC units:

  • Units in the IFSC are treated as non-residents, enjoying the benefits of a non-resident under exchange control provisions.

2. Liberalized currency control regime for Indian residents:

  • Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 (“ODI Regulations”) restrict investment by an Indian resident into an overseas firm in the financial services sector.
  • To enable, Indian residents to set-up and invest funds in GIFT City, RBI, vide its Circular dated May 12, 2021, has permitted sponsor contribution from a sponsor Indian party in an Alternative Investment Fund (AIF) established overseas, including IFSC.

Related Read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

Conclusion

Setting up a business entity at GIFT City and capitalizing on these benefits, businesses and investors can harness the immense potential and growth opportunities available at IFSC, GIFT City. Benefits from fiscal, operational, tax make GIFT City an attractive destination for setting businesses. By leveraging these benefits, businesses can unlock growth opportunities and thrive in the dynamic ecosystem of GIFT City.

Why Choose Incorp?

At In. Corp, our team will help you with setting up IFSC units in GIFT and other services at GIFT City:

Setting up IFSC entities at GIFT City, Gujarat: Incorp can help to setup IFSC units at GIFT City within the regulatory framework. These includes selection of appropriate structure, incorporation of the entity, services from identification of office space to incorporation of units and advice on different services offered by IFSCA Authority.

Obtaining SEZ & IFSCA approvals: Incorp will liaison with SEZ & IFSCA Authority for applying, preparing documentation required, obtaining necessary licenses to operate from GIFT City as IFSC unit.

Other regulatory compliances: Incorp will assist you to obtain various initial registrations under Income Tax Act, GST Law, IEC, RCMC etc. and can provide assistance in the various regulatory compliance.

FAQs

Need help with navigating the rules and regulations in Gift city?

Get In Touch With Us Today

A Complete Overview of IFSC Gift City and Tax Benefits in Gift City

by InCorp Advisory

Reading Time: 5 minutes

Gujarat International Finance Tec-City (GIFT City) is a planned business district in Gujarat, India. It is the new business destination offering competitive edge to Financial services and Technology related activities.

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

What Is GIFT City?

GIFT City is a multi-service Special Economic Zone (SEZ) with an International Financial Services Centre (IFSC) and a local financial centre. It is India’s first operational greenfield smart city and international financial services center, promoted by the Government of Gujarat as a greenfield project.

With the creation of an International Financial Services Centre, the goal is to create a world-class smart city that will become a worldwide financial hub. The government is also attempting to bring financial services and transactions to India that are now carried out in offshore financial centres by local corporate entities and overseas branches or subsidiaries of financial institutions (FIs).

GIFT City is equipped with some of the latest technology known to man. From the latest public transport, state-of-the-art infrastructure to automated waste collection to an efficient district cooling system, Gift City is an ideal environment for you to set up your business.

Related Read: GIFT City – An Overview and Tax Incentives Announced In The Budget

CLICK HERE

What Is IFSC at Gift City?

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.

International (IFCs) or offshore Financial Centers are financial centres that serve consumers from countries other than their own (OFCs). All of these centres are ‘international’ in the sense that they deal with the cross-border flow of money and financial products and services.

An IFSC is thus a jurisdiction that delivers world-class financial services to non-residents and residents in a currency other than the domestic currency (Indian rupee) of the area where the IFSC is located, to the extent permissible under present legislation.

The IFSC allows Indian corporate businesses and overseas branches/subsidiaries of Financial Institutions (such as banks, insurance firms, and other financial institutions) to bring financial services and transactions that are now carried out in offshore financial centres back to India.

It provides a commercial and regulatory environment that is comparable to London and Singapore, two of the world’s top international financial centres.

IFSCs are designed to give Indian corporations easier access to global financial markets while also complementing and promoting the development of India’s financial markets.

The Gujarat International Finance Tec-City in Gandhinagar, Ahmedabad, Gujarat, has become India’s first IFSC. It is the only IFSC in India that has been authorised.

Related Read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

What If 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.
  • 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 are The benefits in GIFT city?

Government of India along with Government of Gujarat have provided a slew of benefits to the entities setting up the GIFT City. These incentives range from exemption of registration fee and stamp duties to tax benefits. Details of the benefits in Gift City are set out herein below:

Related Read: Union Budget 2023-24 – GIFT City IFSC

CLICK HERE

Fiscal Benefits to IFSC units:

1. Income Tax Benefits

Units in IFSC:

    • 100% tax exemption for 10 years out of 15 years
    • IFSC Unit has the flexibility to select any 10 years out of 15 years block
    • MAT / AMT @ 9% of book profits applies to Company / others setup as a unit in IFSC – MAT not applicable to companies in IFSC opting for new tax regime
    • Dividend paid to shareholders of company in IFSC: From 01 April 2020, dividend income distributed by Company in IFSC to be taxed in the hands of the shareholder.

Investors:

    • Interest income paid to non-residents on: (i) Money lent to IFSC units not taxable. (ii) Long Term Bonds and Rupee Denominated Bonds listed on IFSC exchanges taxable at a lower rate of 4%
    • Transfer of specified securities* listed on IFSC exchanges by a non-resident not treated as transfer – Gains accruing thereon not chargeable to tax in India

2. Goods and Services Tax (GST) Benefits

Units in IFSC:

    • No GST on services: (i) received by unit in IFSC. (ii) provided to IFSC / SEZ units, Offshore clients.
    • GST applicable on services provided to Domestic Tariff Area

Investors:

    • No GST on transactions carried out in IFSC exchanges

3. Other Taxes and Duties

Units in IFSC:

    • State Subsidies – Lease rental, PF contribution, electricity charges.

Investors:

    • Exemption from Security Transaction Tax (STT), Commodity Transaction Tax (CTT), stamp duty in respect of transactions carries out on IFSC exchanges.

Operational Benefits:

1. Exemption from currency control regulations to IFSC Units:

Under SEZ Act, a unit set up in IFSC is treated as a non-resident. Even under Foreign Exchange Management Act, 2002 (“FEMA“) units in IFSC enjoy the benefits of a non-resident under exchange control provisions.

2. Liberalized currency control regime for Indian residents:

Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 (“ODI Regulations”) restrict investment by an Indian resident into an overseas firm in the financial services sector. To enable, Indian residents to set-up and invest funds in GIFT City, RBI, vide its Circular dated May 12, 2021 has permitted sponsor contribution from a sponsor Indian party in an Alternative Investment Fund (AIF) established overseas, including IFSC

What are the services rendered in GIFT city?

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.

Related Read: Benefits For Stock Brokers Registered in IFSC GIFT City

CLICK HERE

Conclusion

IFSC reinforces India’s strategic position as a global business hub for financial services. The city has a lot of economic and fiscal advantages. It has been meticulously planned and structured to lure foreign investors and institutions. The Government of India has made significant efforts to promote the establishment of the IFSC, 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 and Gift city. 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.

FAQs

Need help with navigating the rules and regulations in Gift city?

Get In Touch With Us Today

Implications Of GST On Warranty On Sales

by InCorp Advisory

Reading Time: 8 minutes

The concept of warranty has been introduced to provide assurance to customers that in the event of failure of the product and parts, the customer will be indemnified against any loss or damage resulting from the purchase and use of the product.

A product could be defective because of faulty workmanship or materials. Warranty service is a kind of guarantee given by a trader or manufacturer to his customer to secure any defects in the products for a specified period of time.

In this article, we shall inform you about the different types of warranty and Implications of GST on warranty.

What Are The Different Types Of Warranties Made Available To The Customers?

Assurances provided by way warranty is made available to a customer in various ways, such as:

Replacement WarrantiesReplacement Warranties:
  • A replacement warranty is an assurance provided by the supplier at the time of supply to replace the product post-supply in a specified time.
  • Further, no separate charge is recovered from the customer at the point of supply, as such costs are generally included in the product’s price.
Warranties for RepairWarranties for Repair:
  • In such a case, the supplier undertakes to repair the defects found in the product. He may or may not charge additional consideration/ payment.
Extended WarrantyExtended Warranty:
  • An extended warranty is a prolonged warranty offered to consumers in addition to the standard warranty.
  • It is usually an extension of the period of the manufacturer’s warranty provided at the time of supply of goods for consideration.

What Do You Mean By Supply?

To impose a tax on warranties, it is important to understand the scope of supply as per the tax laws.

Supply includes all forms of supply of goods or services or both.

A few examples of supply include:

Sale Exchange
Transfer Rental
License Lease or disposal
Barter

Such supply has to be made or agreed to be made for some consideration by a person in the course of business.

It is essential that the supply of goods is made for consideration.

What Is Composite Supply?

When two or more taxable supplies of goods or services or both, are bundled in natural course and are supplied with each other in the ordinary course of business, it is known as a Composite supply.

For example, A customer buys a TV from a retailer. He gets a warranty and maintenance service from the manufacturer for a specific time period. This would be considered as a composite supply where the TV is a principal supply and warranty services are ancillary supplies.

Now the question arises whether the supply of goods under warranty is made for consideration or not?

Let us take a look at Replacement Warranties

  • Under replacement warranty, goods are supplied free of charge to customers. No separate consideration is charged at the time of replacement. This is because consideration for the same has been recovered at the time of supply of principal goods.
  • Thus, tax on the same would have been paid at the time of principal supply of goods, as such costs are included in the price of principal goods sold.
  • As consideration is missing in such transactions, it does not fall under the purview of ‘Supply’.
  • Such transaction may be viewed as consideration received for supply of principal goods and goods under warranty and can be treated as composite supply.

What Are The Implications of GST On Warranty?

  • Input tax credit on input and input services used to provide warranty services is available to the supplier.
  • The price of warranty services is inbuilt in the supply price of the product; therefore, such warranty services have suffered output tax.
  • Thus, you are eligible to claim an input tax credit against such services.

The government has clarified the same as under:

Question: What would be the tax liability on the replacement of parts under warranty (where no consideration is charged from a customer)? Is the supplier required to reverse the input tax credit?
Answer: No GST is chargeable on such replacement under warranty, as parts are provided to the customer without consideration. The costs to be incurred during the warranty period are included in the value of the supply made earlier.
Therefore, under warranty replacement, the supplier is not required to reverse the input tax credit on the parts/components replaced.

Determine Your GST Liability By Using Our GST Calculator

CLICK HERE!

Let us take a look at Warranties for Repairs

  • Where the repair is undertaken by the supplier –
    • The supplier of goods provides repair services for any defects found in the products after the supply of goods. If separate consideration is not charged, then the same may not be treated as a separate supply.
    • The consideration for the same has been inbuilt in the price of principal goods supplied. In such case, the price is charged by the supplier for the principal goods supplied and repair services, though the repair services are provided in the future course of action.
    • The same may be treated as a composite supply of goods and services as per the principles discussed above, which altogether get taxed at the initial point of supply.
  • Where the repair is undertaken by the distributor –
    • In such a case, the distributor supplies the goods to the ultimate consumer with a warranty repair service.
    • No separate recovery is made, as the price for such services is included in the price of goods supplied.

What Are The Implications of GST On Warranty?

GST shall not be payable on the supply of such warranty services by the distributor.

Case 1: Sometimes distributor recovers the cost of warranty repairs incurred by him from the original supplier of goods.

  • The cost incurred by the distributor on behalf of the original supplier of goods represents the costs that the original supplier would have incurred if the original supplier had directly undertaken the repairs of the goods under warranty.
  • There is no underlying supply between the distributor and the original supplier, so far as the cost recovery is concerned.
  • Thus, GST shall not be payable if the distributor recovers only the cost component from the original supplier.

Case 2: Where a distributor charges a mark-up for the repair services performed on behalf of the manufacturer.

  • In this case, the repairs performed by the distributor constitute a supply of service made in relation to such goods.
  • Hence, the distributor must charge GST on the total value of the payments received from the manufacturer.

Case 3: Where the repair is undertaken by a third party.

  • Sometimes supplier sells the good to the ultimate customer and hires a third-party vendor to perform the warranty repair service.
  • The third-party vendor performs the repair service and bills the original supplier of goods for the service.
  • The third-party vendor supplies repair service to the original supplier of goods in connection with the goods supplied by the original supplier.

What Are The Implications of GST On Warranty?

In this case, there is an underlying supply between the original supplier and the third-party vendor, thereby attracting the levy of goods and service tax.

This can be understood with the help of an example:

E.g., A manufacturer (M) has to provide repair services to their customers in the warranty period. This activity is outsourced by ‘M’ to ‘K’, who bills the ‘M’ for the services he provides to the customer.
In the instant case, ‘K’ is providing service to the ‘M’. Hence, in respect of bills raised by ‘K’ on ‘M’, GST is payable. (i.e. on the value of any supplies made by ‘K’ to ‘M’.)

Let us take a look at Extended Warranties

  • When consideration is charged at the time of extending the warranty period by the original supplier, the same shall be treated as supply, thereby attracting the levy of goods and service tax.
  • However, consequent to such extension, any supply of goods or service is made under warranty free of cost; then the same shall not be treated as a separate supply. This is because consideration has been included in the price paid at the point of extension of warranties.

Related Read: E-Invoicing Under GST

CLICK HERE!

Let’s take an example of E-commerce sales

Generally, major E-commerce operators sell goods through private labels with some warranty attached to the product. This warranty may be in form of a replacement warranty or repair warranty.

What Is The GST Impact On This Transaction?

Selling goods along with warranty falls under composite supply of goods, hence no GST is payable again at the time of replacement of goods under warranty or undertaking repairs for the same.

GST on the warranty is already discharged at the time of sale earlier.

Further, no Input tax reversal is applicable for goods supplied free of cost under warranty.

We have included a few Advance ruling Judgements to provide better clarity on GST implications on warranty on sales.

They are as follows:

  • Volvo-Eicher Commercial Vehicles Ltd. In re, AAR, Karnataka
    • The appellant is in the business of selling Volvo branded trucks and providing after-sales support services, including warranty services.
    • The appellant and Volvo Sweden have entered into an arrangement in which the appellant handles the distribution in India and after-sale support services of Volvo products.
    • The appellant sells its products with a warranty of 1 to 2 years, the cost of which is included in the sales price of the products.
    • The appellant is responsible for the servicing of warranty claims of its customers.
    • The onus to reimburse such expenses incurred for discharging the warranty obligation lies with Volvo Sweden.
    • In pursuance of this agreement, the appellant has been engaging in discharging the warranty claims of customers in India.

The Authority for Advance Ruling (AAR) held that the repair and servicing of Volvo vehicles by the appellant for Indian customers during the warranty period would be an activity amounting to a composite supply of goods and services with principal supply being a supply of service for Volvo Sweden.

  • Saraswathi Metal Works, In re AAR, Kerala
    • The applicant is a manufacturer of Marine propellers, Rudder set, Stern tube set, Propellers shaft, MS shaft for couplings used in fishing or floating vessels.
    • The applicant requested an advance ruling on the tax rate of the products mentioned above.
    • They asked the following:
  • ➔ Investment Accounting and relevant documentation support.
  • ➔ Investment Accounting and relevant documentation support.

AAR held as follows:-

  • The replacement of parts during the warranty period is a free supply.
  • Warranty is a written guarantee. It is issued to the buyer of goods by its manufacturer, promising to repair or replace it if necessary within a specified period of time.
  • If the goods are supplied with a warranty, the consideration received as part of supply includes the consideration for ‘the promise to repair or replace’.

What Are The Implications of GST On Warranty?

  • Since the parts are provided to a customer without consideration under warranty, no GST is chargeable on such replacement.
  • The value of supply made earlier includes the costs to be incurred during the warranty period. Therefore, the supplier who has undertaken the warranty replacement is not required to reverse the input tax credit on the parts/components replaced.
  • Even though the raw materials consumed attract a higher tax rate than the finished products or parts, input tax paid is eligible to avail as an input tax credit.
  • However, it is subject to a condition that such goods or services or both are used or intended to be used in the course or furtherance of his business.
  • Thus, the tax rate of Marine propellers, Rudder set, Stern tube set, Propellers shaft, MS shaft for couplings used as part of fishing vessels, factory ships, and other vessels for processing or preserving fishery products are taxable at 5 percent GST.
  • All parts of fishing/floating vessels come are taxable at 5 percent. The supply of parts under warranty being without consideration, no GST is payable.
  • The value of supply made earlier includes the costs to be incurred during the warranty period.
  • Therefore, the applicant who undertakes the warranty replacement is not required to reverse the input tax credit on the parts/components replaced.
  • The supplier/manufacturer is eligible to avail the credit of higher input tax paid on the purchase of raw materials, even though the manufactured products are taxable at a lesser tax rate.

Why Choose Incorp?

At Incorp, we have the expertise and skills to guide you on various indirect tax levies including Goods and Services Tax (GST). We have with us professionals having in-depth knowledge and wide-ranging experience to help you in the effective planning and structuring of your business to ensure compliance with the regulations.

Need help with navigating India’s tax system and GST regulations?

Get In Touch With Us Today

GIFT City: An Overview and Tax Benefits

by InCorp Advisory

Reading Time: 5 minutes

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:

An SEZ (Special economic zone) A Domestic tariff area (DTA)

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:

Legal, Compliance and Secretarial; Auditing, Accounting, Bookkeeping and Taxation Services;
Professional & Management Consulting Services; Administration, Assets Management Support Services and Trusteeship Services;
Any other services as approved by IFSCA from time to time.

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?

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.

Need help with navigating the rules and regulations in Gift City?

Get In Touch With Us Today

New Rules For Re-Registration Of Charitable Organizations W.E.F. 01st April 2021

by InCorp Advisory

Reading Time: 3 minutes

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 01st 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 31st 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:

charitable organisationExisting 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 OrganisationNew Charitable Organisation Incorporated
  • Application to be made: On or Before 28th 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/SwitchRe-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?

We are here to guide you and ensure peace of mind from setting up your Charitable Organization, to staying compliant and managing your taxes on time with ease.

Get in touch with us today

Everything You Need to Know About Slump Sale

by InCorp Advisory

Reading Time: 5 minutes

Slump sale is an effective and maybe the quickest strategy to undertake business transfer with assets and liabilities. Slump sale is considered to be one of the most preferred ways of carrying out mergers & acquisitions deals. Compared to the other types of mergers/acquisition strategies, slum sale has the least complex yet well-defined tax implications along with other allied law procedures that are simple and time-efficient.

What is a Slump sale?

  • Slump Sale means the transfer of one or more undertakings  against a lump sum consideration without values being allocated to the individual assets and liabilities.
  • The consideration for a slump sale should be settled in lump sum only which can be in cash, exchange of shares, debentures, bonds etc. The scope of slump sale is wide and it covers situations like exchange, barter etc.

Objectives of Slump Sale

Slump sale is intended to accomplish the following purposes:

  • To strengthen the performance of the business with efficient management strategies
  • To target and remove negative synergy and distinction between core and non-core operations
  • To attain tax and regulatory benefits

Slump Sale Infographic

Compliances under Companies Act 2013

  • Companies Act 2013 has a unique and extended definition of undertaking by defining threshold limit.
  • ‘Undertaking’ is defined as a unit/undertaking in which investment of the company exceeds 20% of its net worth or which generates 20% of the total income.
  • In case of a slump sale, provisions of section 180 shall get attracted to any company other than a private company. Special resolution (with 75% approval) needs to be passed / approved in the general meeting of the company for undertaking the slump sale transaction.
  • On passing the resolution successfully the board may authorize any person to finalise and execute on necessary documents including definitive agreements, business transfer agreements, deeds of assignment /conveyance and other ancillary documents.
  • Form MGT-14 along with resolution and notice given under section 102 must be filed with the ROC within 30 days along with the prescribed fees based on share capital.
  • If the above undertaking criteria is not satisfied, then there is no need of passing special resolution.

Compliances under Income Tax Act, 1961

  • Transaction of slump sale is taxable as capital gain as per provisions of section 50B of Income Tax Act ,1961.
  • The gain or loss resulting out of a slump sale shall be considered as capital gain/loss under the Income Tax Act in the manner prescribed below:
Particulars Amount
Full value of consideration XXX
Less: Expenses in relation to transfer XX
Net Consideration XXX
Less: Net worth of the undertaking XX
Short / Long term capital gain/loss XXX

 

In computing the net worth of the entity, following points need to be considered:

  • Value of net worth should not take into account any revalued figures of asset and liability.
  • The written down value of assets shall be considered in case of depreciable assets under the Income Tax Act.
  • The value of assets will not be considered on which 100% deduction has been allowed u/s 35AD (specified businesses).
  • The value as appearing in the books of accounts shall be considered in case of any other asset.

After considering the above points; the cost of acquisition shall be taken as Nil for the purpose of computation of capital gains, in case the resulting net worth is negative.

  • Where the undertaking is owned and held by the transferor for 36 months or less immediately preceding the date of transfer, the undertaking would be regarded as short-term capital asset and the gains will be taxed at applicable rate.
  • If the undertaking is owned and held for more than 36 months before the date of transfer, then the gains shall be treated as long-term capital gain and it will be taxed @ 20%. No indexation in case of long-term capital gain computation.
  • A report by a Chartered Accountant in Form 3CEA certifying that the net worth of the undertaking has been correctly arrived at in accordance with the provisions of section 50B of the Income Tax Act,1961.
  • Transferor shall be allowed to carry forward the unabsorbed losses and depreciation with respect to transferred undertaking in future years. In other words, in case of a slump sale, the transferee entity will not get benefits of tax losses of the transferor. Also, the credit in respect of minimum alternate taxes is retained in case of corporate assessee with the transferor company.

Proposed Amendment in Union Budget 2021

  • With effect from 1st April 2021, it is proposed to widen the scope of slump sale u/s 2(42C) to include the transfer of one or more undertakings by any means’ for lump sum consideration.
  • The above amendment also clarifies tax on ‘slump exchange’ of an undertaking which includes exchange, barter, relinquishment, extinguishment, etc as capital gains.
  • Implication: Business transfer by any mode of the settlement would attract tax under capital gain.

Compliances under GST Act 2017:

  • The transfer of an undertaking on a going-concern basis, as a whole or an independent part thereof, has been exempted from GST vide Notification No. 12/2017-Central Tax.
  • Further, on slump sale of an undertaking, the transferee is eligible to transfer unutilized Input Tax Credits lying in the electronic credit ledger of the transferor in pursuance to change in the constitution due to sale, merger, demerger, amalgamation, transfer of business etc., subject to conditions by filing of Form ITC-02.
  • Apart from the above-mentioned points, legacy of ambiguity continues as no clarity on reversal of credit claimed in past years.

Difference between Individual asset sale and slump sale:

Slump Sale Individual Asset Sale
The transferee ends up buying the whole of the business undertaking. The transferee can cherry pick the assets it wants to acquire.
Valuation is not done for individual component or assets but is done only for the whole of the business undertaking/asset. Valuation is done for individual component or assets
The rights & liabilities of the assets are transferred to the transferee. The rights and liabilities of the assets may or may not be transferred to the transferee as per the mutual agreement.
The tax incentives/ tax holidays and benefits of the existing business can be transferred to the new owner. The tax incentives and benefits of the existing business cannot be transferred to the new owner.
GST will not be applicable if transferred on going concern basis. GST will be applicable.
Transfer of any depreciable asset under slump sale can attract long term capital gain of 20% if undertaking is more than 3 years. Transfer of any depreciable asset under Individual Asset Sale would attract short term capital gain of applicable rate to the entity.
Provisions of section 50C as regard to stamp duty value in case of land & building does not apply. Provisions of section 50C as regard to stamp duty value in case of land & building does apply.
Provision of gift tax u/s 56(2) does not arise for slump sale transaction. Provision of gift tax u/s 56(2) arises provided for transfer specified assets u/s 56(2) are acquired as capital asset.

How Can InCorp Help You?

At In.Corp, our team will offer you assistance on various services involved in a slump sale transaction. Our Direct tax team can assist you in ascertaining your Income-tax liability on Slump sale. On the other hand, our Indirect tax team can assist you in ascertaining your GST liability on the sale. Also, avail assistance on compliance & documentation with ROC /MCA under Companies Act along with assistance in valuation and computation of net worth of the undertaking.

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