The Union Budget 2024-25 has brought in a plethora of incentives to boost the International Finance Services Centre (IFSC) at GIFT City in Gujarat, enhancing the "ease of doing business" and providing greater clarity for various financial instruments. This development is expected to have a significant impact on the sector, particularly focusing on Non-Resident Indians (NRIs) and foreign investors.
Retail and ETFs Get Exemptions
The Budget has granted exemptions for retail and exchange-traded funds (ETFs), bringing them in line with Alternate Investment Funds (AIFs) and other existing funds. This move is expected to stimulate growth in this sector, particularly focusing on NRIs and foreign investors.
Variable Capital Company Structure Introduced
The introduction of the Variable Capital Company (VCC) structure, a globally recognized vehicle for investment funds, is set to further enhance GIFT IFSC's attractiveness. The VCC structure allows multiple funds to be created within the same structure and firewalled from each other, reducing costs and complexity.
Financial Leasing Simplified
The Budget also outlined plans to seek legislative approval for more efficient and flexible financial leasing of aircraft and ships, as well as pooled funds of private equity through a 'variable company structure.' This will simplify the creation of new funds and reduce costs and complexity.
Venture Capital Funds Exempted from Source Funding Disclosure
Additionally, Venture Capital Funds (VCFs) located in IFSC have been exempted from having to disclose the source of their funding when extending loans or other amounts to assessees. This exemption aligns VCFs with Venture Capital Companies (VCCs) registered with SEBI in IFSC.
Tax Framework for Overseas Direct Investments Remains Pending
Despite these advancements, some anticipated reforms such as the tax framework for Overseas Direct Investments (ODIs) by non-banking units and clarity on taxation of insurance proceeds in IFSC remain pending. Nevertheless, the alignment of tax treatment for Retail Schemes and ETFs with Category III IFSC AIFs is expected to attract global fund managers and strengthen the fund management ecosystem.
The Union Budget 2024-25 has brought in a bonanza of incentives for the International Finance Services Centre (IFSC) at GIFT City, enhancing the "ease of doing business" and providing greater clarity for various financial instruments. This development is expected to have a significant impact on the sector, particularly focusing on NRIs and foreign investors.
References
- ET Bureau (2024). Budget 2024: Financial Services Sector Gets Boost with Retail and ETF Exemptions.
- Press Trust of India (2024). Union Budget 2024-25: Venture Capital Funds Get Relief from Source Funding Disclosure.
- Business Standard (2024). Budget 2024: Financial Leasing Simplified, Tax Framework for Overseas Direct Investments Remains Pending.
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