Plethora of Incentives to International Financial Services Centre (IFSC):

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Plethora of Incentives to International Financial Services Centre (IFSC):

In order to promote the development of world class financial infrastructure in
India, some tax concessions have already been provided in respect of business
carried on from an IFSC. To further promote such development and bring these
IFSC at par with similar IFSC in other countries, following additional benefits are
proposed:
A) Under the existing provisions of the section 47 of the Act, any transfer of a
capital asset, being bonds or Global Depository Receipts or rupee
denominated bond of an Indian company or derivative, made by a non-
resident through a recognised stock exchange located in any IFSC and
where the consideration for such transaction is paid or payable in foreign
currency shall not be regarded as transfer.
With a view to provide tax-neutral transfer of certain securities by Category
III Alternative Investment Fund (AIF) in IFSC, it is proposed to amend the
said section so as to provide that any transfer of a capital asset, specified
in the said clause by such AIF, of which all the unit holders are non-
resident, are not regarded as transfer subject to fulfillment of specified
conditions.
It is also proposed to widen the types of securities listed in said clause by

empowering the Central Government to notify other securities for the
purposes of this clause.
These amendments will take effect from 1st April, 2020 and will,
accordingly, apply in relation to the assessment year 2020-21 and
subsequent assessment years.
B) With a view to facilitate external borrowing by the units located in IFSC, it
is proposed to amend the section 10 of the Act so as to provide that any
income by way of interest payable to a non-resident by a unit located in
IFSC in respect of monies borrowed by it on or after 1st day of September,
2019, shall be exempt. This amendment will take effect from 1st April,
2020 and will, accordingly, apply in relation to the assessment year 2020-
21 and subsequent assessment years.
C) The existing provisions of the section 115-O of the Act, provide that no tax
on distributed profits shall be chargeable in respect of the total income of a
company, being a unit of an IFSC, deriving income solely in convertible
foreign exchange, for any assessment year on any amount declared,
distributed or paid by such company, by way of dividends (whether interim
or otherwise) on or after the 1st day of April, 2017, out of its current
income, either in the hands of the company or the person receiving such
dividend. To facilitate distribution of dividend by companies operating in
IFSC, it is proposed to amend the provision of the said section to provide
that any dividend paid out of accumulated income derived from operations
in IFSC, after 1st April 2017 shall also not be liable for tax on distributed
profits. This amendment will take effect from 1st September, 2019.
D) The existing provisions of the section 115R of the Act, provide that any
amount of income distributed by the specified company or a Mutual Fund
to its unit holders shall be chargeable to tax and such specified company
or Mutual Fund shall be liable to pay additional income-tax on such
distributed income. In order to incentivize relocation of Mutual Fund in
IFSC, it is proposed to amend the said section so as to provide that no
additional income-tax shall be chargeable in respect of any amount of
income distributed, on or after the 1st day of September, 2019, by a Mutual
Fund of which all the unit holders are non-residents and which fulfills
certain other specified conditions. This amendment will take effect, from
1st September, 2019.
E) The existing provisions of the section 80LA of the Act, inter alia, provide
profit linked deduction of an amount equal to one hundred per cent of
income for the first five consecutive assessment years and fifty per cent of
income for the next five consecutive assessment years, to units of an
IFSC. With a view to further incentivize operation of units in IFSC, it is
proposed to amend the said section so as to provide that the deduction

shall be increased to one hundred per cent for any ten consecutive years.
The assessee, at his option, may claim the said deduction for any ten
consecutive assessment years out of fifteen years beginning with the year
in which the necessary permission was obtained. This amendment will
take effect, from 1st April, 2020 and will, accordingly, apply in relation to
the assessment year 2020-21 and subsequent assessment years.
F) Section 115A of the Act provides the method of calculation of income-tax
payable by a non-resident (not being a company) or by a foreign company
where the total income includes any income by way of dividend (other than
referred in section 115-O), interest, royalty and fees for technical services;
etc. Section 80LA, provides for deduction in respect of certain incomes to a
unit located in an IFSC. However, sub-section (4) of section 115A prohibits
any deduction under chapter VIA which includes section 80LA. In order to
ensure that units located in IFSC claim full deduction, it is proposed to
amend section 115A of the Act so as to provide that the conditions
contained in sub-section (4) of section 115A shall not apply to a unit of an
IFSC for under section 80LA is allowed. This amendment will take effect
from the 1st April, 2020 and will, accordingly, apply in relation to the
assessment year 2020-21 and subsequent years.

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