It is estimated that Indian households have accumulated considerable wealth outside the country; well beyond the present limits set by RBI. The ability of Indian households to move resources across the border has increased with India’s increasing openness. The proliferation of Indian MNCs operating around the world – and transfer pricing with their subsidiaries abroad – has led to International Financial Services demand for fund-raising, corporate treasury management and global tax management. With rapidly increasing annual ﬂows, the stock of assets outside the country controlled by Indian households and ﬁrms is rising rapidly. (Source: Report HPEC on IFCs)
These assets require International Financial Services for wealth, asset and global tax management. All these phenomena imply inevitable increases in IFS purchases associated with the growing size of cross border ﬂows.
The International Financial Service products and services that International Financial Services Centres (IFSC) provide include the following eleven activities:
Section 2(q) of the Special Economic Zones Act, 2005 defines an IFSC as “International Financial Services Centre which has been approved by the Central Government under sub-section (1) of section 18”. Section 18(1) of the SEZ Act. 2005 states the following;
“(1) The Central Government may approve the setting up of an International Financial Services Centre in a Special Economic Zone and prescribe the requirements for setting up and operation of such Centre.
Provided that the Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.”
The RBI has framed around 27 regulations for the purpose of regulating permissible transactions of financial institutions in an IFSC under the FEMA Act, 1999. These regulations are called the FEMA (IFSC) Regulations, 2015 vide NOTIFICATION [NO. FEMA/339/2015-RB]/GSR 218(E). The key highlight of these regulations is that any financial institution set up in the IFSC and recognised as such by the government or the Authority shall be treated as a person resident outside India. Furthermore, the RBI also sets out its ambit and states that a financial institution shall conduct business in foreign currency and with such persons, whether resident or otherwise, as it may determine.
SEBI issued guidelines on IFSCs, these Guidelines cover prominent features such as operation by entities, eligibility criteria for stock Exchanges, Clearing Corporations and Depositories, Exemptions to entities, Issue of Capital and debt securities, nature of clients for an Intermediary and Investment. Further, many other guidelines have been issued with respect to maintenance of accounts and other miscellaneous provisions,
Insurance Regulatory and Development Authority of India (International Financial Service Centre Insurance Intermediary Offices) Guidelines, 2019 vide CIRCULAR NO. IRDA/RI/GDL/MISC/012/01/2019.
These Guidelines grant permission to “intermediaries or Insurance Intermediaries” registered with the IRDAI to operate within IFSC. Furthermore, the guidelines describe the operational aspects and registration process for said intermediaries.
Therefore, the company can enjoy tax holiday for a period of ten consecutive assessment years without attracting any tax liability under normal provisions of the Act and as well as liability under Minimum Alternate Tax.
To consolidate the regulatory structure for IFSC in India under the aegis of one authority and ease up the compliance process, the government has enacted International Financial Services Centres Authority Act, 2019.
As per Mr. Injeti Srinivas, Chairperson, IFSCA, the prominent features of the Act are:
“The IFSCA is a unified authority for development and regulation of financial products, financial services and financial institutions in the international financial services centre in India in the areas of banking, insurance, securities and funds management. We at IFSCA are committed to providing a comprehensive and consistent regulatory framework based on global best practices with a special focus on ease of doing business. As a unified regulator we are committed to ensuring financial stability and protecting the interests of investors.”
Presently the maiden IFSC in India is located at the Gujarat International Finance Tec-City at Gandhinagar in the state of Gujarat. However, many are in progress. We should hope when so many incentives have been provided for the growth of OFSCs in India. We can witness great growth of IFSCs in India in the time to come.
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