Pain remains for IFSC, will Budget fix it?

By V Balasubramaniam

At India's first International Financial Services Centre, getting on par with other financial hubs cannot be overstated. India's IFSC mission is still bogged down by several handicaps that make us a less preferred option than the US, London, Singapore and Hong Kong.

On the direct tax side, we hope the following key areas will be addressed:


1. Short Term Capital Gains Tax needs to be done away with for any transaction that is carried out through the IFSC in both derivatives and debt.

We have seen impact of this already in terms of cost of doing a derivative transaction today at the IFSC as against Singapore or London. We have also seen impact of this in terms of volume erosion in Indian market once Dubai introduced single stock futures and now, we are expecting Singapore to introduce them from February. The key reason why investors prefer to trade on Indian securities from global venues like London, Singapore and Dubai is because of less capital gains tax friction.

2. Last Budget, it was announced that capital gains arising out of transfer of non-derivative securities between two non-residents outside India will not be taxable in India. Extending similar benefits on capital gains stemming from transfer of securities between IFSC entities will get us truly at par with other jurisdictions.

3. Also, at the IFSC in India, the income tax benefit is available for first 10 years compared with up to 50 years in Dubai.

4. Long Term Capital Gains Tax should also be done away with for bonds traded at the IFSC. This is a pre-requisite to develop a vibrant corporate bond market at the IFSC.

5. For an investor ecosystem to develop, the taxation rates for funds (AIFs) need to be brought at par with other types of IFSC units that are being set up for providing financial services.

6. Clarity on applicability of double taxation treaty at the IFSC as a deemed offshore jurisdiction is important. While the regulator has already allowed FPIs to participate in commodities at the IFSC, lack of clarity on applicability of tax treaty has been the deterrent to participation.

7. Today, London and Singapore do not have any withholding tax for issuers who raise funds there. We hope that in the Budget, bonds issued at the IFSC will be exempted from withholding tax.

(V Balasubramaniam is MD & CEO of India INX. Views are personal)