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Introduction
India has been making determined efforts to become a financial hub for the entire world. Among the most serious and visionary steps taken in this direction is the development of GIFT City (Gujarat International Finance Tec-City). It is a world-class financial center intended to challenge the likes of global financial hubs such as Singapore, Dubai, and London.
What is GIFT City?
GIFT City is India’s first functional smart city and international financial services centre (IFSC) in Gandhinagar, Gujarat. GIFT City is a greenfield project and seeks to become a hub for financial and IT services, both domestic and global.
GIFT City has two primary zones:
- Domestic Tariff Area (DTA) –
- Where domestic financial operations, in Indian Rupees (INR), are conducted.
- Special Economic Zone (SEZ) –
- Also known as GIFT-SEZ, this is the specified International Financial Services Centre (IFSC) where transactions are done in foreign currency.
An International Financial Services Centre (IFSC) offers financial services to non-residents and residents (up to a limit), in any currency other than Indian Rupees. It is a platform to take financial transactions, which are otherwise being executed overseas, to Indian land, in a competitive international environment.
GIFT-SEZ is India’s sole IFSC.
Established under the Special Economic Zones Act, 2005, GIFT-SEZ:
- Is considered a jurisdiction outside India.
- Allows offshore financial transactions.
- Enables units to trade in foreign currency.
- Considers IFSC units as non-resident units in India.
Key Features of GIFT City
| Feature | Description |
|---|---|
| Location | Gandhinagar, Gujarat |
| Zones | Domestic Tariff Area (DTA) and SEZ |
| Currency of Transactions | INR in DTA; Foreign currency in SEZ (IFSC) |
| Regulation | SEBI, RBI, IRDAI under integrated IFSC Authority |
| Activities Permitted | Banking, Insurance, Capital Markets, Asset Management, FinTech, Aircraft and Ship Leasing, etc. |
| Tax Benefits | Exemptions on a number of direct and indirect taxes in IFSC |
Types of Entities Permitted in GIFT IFSC
IFSC units may be established by the following entities:
- Banks –
- Offshore banking units are permitted to operate in foreign currency.
- Insurance Companies –
- Direct insurers and reinsurers function in GIFT IFSC.
- Capital Market Participants –
- Stock exchanges, clearing corporations, depositories.
- FinTech Startups –
- Under sandbox regulations.
- Alternative Investment Funds (AIFs) –
- For foreign investors.
Key Highlights of GIFT-SEZ (IFSC)
1. Offshore Transactions
GIFT-SEZ is the sole location in India where offshore financial transactions are permitted. It is considered to be a foreign jurisdiction.
2. Regulatory Oversight
The International Financial Services Centres Authority (IFSCA), a body set up under IFSCA Act 2019, is a single regulator for all financial services within the GIFT IFSC.
3. Resident vs. Non-Resident Status
- Units within the GIFT IFSC are considered non-resident entities.
- Even Indian parties making investments in IFSC are regulated by Overseas Direct Investment (ODI) Rules of the RBI.
Rules and Limits for Investment
- Under Automatic Route:
- Indian parties can invest in GIFT IFSC units without approval.
- ODI Norms:
- Are applicable as investments in IFSC are considered at par with overseas investment.
- Liberalised Remittance Scheme (LRS):
- Indian citizens can invest a maximum of USD 250,000 per financial year in IFSC or overseas.
Comparison with Financial Centres Overseas
| Feature | GIFT IFSC | Singapore / Dubai / London |
|---|---|---|
| Location | India (SEZ considered as foreign land) | Offshore (foreign land) |
| Currency | Foreign currencies only | Foreign currencies |
| Regulation | IFSCA (single-window clearance) | Local regulators |
| Tax Incentives | Competitive exemptions and holidays | Varies by country |
Significance of GIFT City
- Reduces reliance on offshore financial centers.
- Returns international financial services to Indian soil.
- Increases employment generation and infrastructure development.
- Enhances India’s dominance in international financial markets.
- Fosters innovation and new-age financial activity such as FinTech, Green Finance, and AI-based financial services.
Conclusion
GIFT City, specifically GIFT-SEZ IFSC, is a giant leap in making India a global financial powerhouse. With relaxed regulatory standards, tax-competitive incentives, and world-class infrastructure, it promises huge opportunities to financial institutions, investors, as well as professionals.
