Whalesbook
**The Race to Become a Global Financial Nexus Intensifies
India's ambition to position the Gujarat International Finance Tec-City (GIFT City) as a premier international financial services hub hinges on addressing systemic tax and regulatory friction points. Global financial players are evaluating India as a potential offshore base, but Deloitte contends that current asymmetries are hindering GIFT City's ascent. The consultancy has urged the government to leverage Budget 2026 for reforms that can align GIFT City's operational framework with international standards and competitor offerings.
Harmonizing Tax Treatment for Financial Entities
A core recommendation from Deloitte involves granting broker-dealers and finance companies operating within GIFT City the same tax treatment as International Banking Units (IBUs) of foreign banks. While existing regulations permit these entities to issue certain derivative instruments, the income tax law presently affords broader exemptions to IBUs. Specifically, despite legislative amendments in 2025 aiming to exempt non-resident investors from taxes on income from specific derivatives issued by non-bank entities, capital gains exemptions remain largely exclusive to IBUs' investment divisions. Deloitte argues that extending these capital gains tax exemptions to broker-dealers and finance companies would significantly encourage the onshore migration of offshore access products and markets.
Enhancing Tax Certainty with GAAR Exemptions
Deloitte has also called for the exemption of IFSC units and their transactions from India's General Anti-Avoidance Rules (GAAR). The consultancy highlights that entities within GIFT City already demonstrate substantial economic substance, including physical presence and regulated operations overseen by the International Financial Services Centres Authority (IFSCA). Granting a GAAR exemption, it is argued, would provide much-needed tax certainty, thereby attracting greater foreign investment and business activity, aligning with global efforts to simplify tax regimes for international financial centers. Such an exemption would address concerns that GAAR provisions could introduce unpredictability into an otherwise incentivized financial zone.
Easing Transfer Pricing and TDS Burdens
Further recommendations target Section 92C(4) of the Income-tax Act, which can deny the full 100 percent income tax holiday under Section 80LA to IFSC units if income is enhanced through transfer pricing adjustments. Deloitte warns that this provision risks fostering litigation and undermining investor confidence in the tax certainty of GIFT City. To strengthen India's credibility as a financial hub, exempting IFSC units from this section is crucial. Additionally, Deloitte advocates for the removal of Tax Deducted at Source (TDS) obligations on all payments made to IFSC units eligible for the 10-year tax deduction under Section 80LA. While some TDS exemptions are in place, extending this relief broadly would significantly reduce compliance burdens and enhance the ease of doing business, making GIFT City more competitive against established international financial centers like Dubai International Financial Centre (DIFC) and Singapore, which offer attractive tax structures.
Strategic Positioning in a Competitive Landscape
GIFT City aims to rival established financial hubs such as Singapore, Hong Kong, and Dubai. While it has seen considerable growth, attracting over 500 entities and substantial business transactions, it faces intense competition. Competitors like DIFC offer a 0% corporate tax rate for qualifying entities, and Singapore benefits from decades of established liquidity, trusted legal systems, and a deep network of global participants. For GIFT City to effectively compete, regulatory and tax refinements, as proposed by Deloitte, are imperative. Addressing these fiscal asymmetries and compliance frictions is seen as a critical step to attracting global financial institutions and solidifying GIFT City's stature as a serious offshore financial base, capable of channeling investment into India and serving the wider regional ecosystem.