Union Budget 2023-24 + FINANCE Bill, 2023

Tax Incentives to International Financial Services Centre

Over the past few years several tax concessions have been provided to units located in International Financial Services Centre (IFSC) under the Act to make it a global hub of financial services sector.

2. In order to further incentivize operations from IFSC, it is proposed to provide the following:

(i) It is proposed to amend clause (b) of the Explanation to clause (viiad) of section 47 of the Act to extend the date for transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund in case of relocation to 31st March, 2025 from current limitation of 31st March, 2023.

(ii) Income of non-residents on transfer of Offshore Derivative Instruments (ODI) entered into with IFSC Banking unit is exempt under section 10 (4E) of the Act. Under the ODI contract, the IFSC Banking Unit (IBU) makes the investments in permissible Indian Securities. Income earned by the IBU on such investments is taxed as capital gains, interest, dividend under section 115AD of the Act. After the payment of tax, the IBU passes such income to the ODI holders. Presently, the exemption is provided only on the transfer of ODIs and not on the distribution of income to the non-resident ODI holders, hence this distributed income is taxed twice in India i.e. first when received by the IBU and second, when the same income is distributed to non-resident ODI holders. Therefore, in order to remove the double taxation, it is proposed to amend clause (4E) of section 10 of the Act, to also provide exemption to any income distributed on the offshore derivative instruments, entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be prescribed. It has also been provided that such exempted income shall include only that amount which has been charged to tax in the hands of the IFSC Banking Unit under section 115AD.

(iii) IFSCA (Fund Management) Regulations, 2022 has come into force from May 19, 2022. To bring the reference of the said regulation in the provisions of the Act, it is proposed to amend the definition of “Specified Fund”, “Resultant Fund” and “Investment Fund” to include the reference of IFSCA (Fund Management) Regulations, 2022 in the Act.

3. The above amendments referred to in para 2(i) and 2(iii) will take effect from the 1st day of April, 2023 and accordingly apply to assessment year 2023-24 and subsequent assessment years. The amendment in Para 2(ii) will take effect from the 1st day of April, 2024 and accordingly apply to assessment year 2024-25 and subsequent assessment years

[Clauses 5, 21, 59]

 

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Full Text:

Union Budget 2023-24 + FINANCE Bill, 2023

Tax exemption for ODI distributions prevents double taxation, easing IFSC banking unit pass-through of taxed income. Amendments extend the transfer period for original funds to resultant funds on relocation, exempt income distributed to non-resident holders of Offshore Derivative Instruments provided the income was charged to tax in the IFSC banking unit and will incorporate IFSCA (Fund Management) Regulations, 2022 into the definitions of specified, resultant and investment funds to align statutory definitions with the regulatory regime.