GIFT City’s Role In Elevating India’s Startup Ecosystem

The Gujarat International Financial Tec-City (GIFT City), nestled between Ahmedabad and Gandhinagar along the banks of the Sabarmati River in Gujarat, represents a significant stride in India’s endeavor to establish a global financial hub. 

Covering an impressive expanse of 886 acres, it is equipped with state-of-the-art infrastructure. GIFT City not only serves the needs of large financial services corporations but also plays a vital role in bolstering the Indian startup ecosystem.

Which Startups Can Set Up in GIFT City?

GIFT City holds the distinction of being India’s first International Financial Services Centre (IFSC). An IFSC primarily serves customers outside the domestic economy’s jurisdiction, handling cross-border flows of finance, financial products, and services.

Permissible sectors within GIFT City encompass a wide array of BFSI (Banking, Financial Services, and Insurance) sectors, including Banking, Insurance, Capital Markets, Fund Management, Fintech/Techfins, and more.

Onshoring Indian Innovation To GIFT City

The International Financial Services Centres Authority (IFSCA), the regulatory body for GIFT City is also actively looking at reverse flipping Indian startups back to India – especially to GIFT City. 

They had set up an Expert Committee for this which has recently submitted its report titled 

“Onshoring of Indian Innovation to GIFT City IFSC” – This report lays down recommendations for legal, regulatory, and tax reforms aimed at attracting Indian-founded startups back to India. It also encourages Indian entrepreneurs to establish their companies in the IFSC at GIFT City, as opposed to popular offshore jurisdictions like the US or Singapore.

Benefits For Startups In GIFT City

GIFT City offers startups access to a plethora of funding opportunities, a pro-business climate, and a culture that puts innovation at the forefront. Its strategic location fosters partnerships and collaborations, while ensuring a steady inflow of skilled professionals due to its proximity to various talent pools.

From a tax standpoint, startups can avail themselves of a 100% tax exemption for any 10 years out of a 15-year period. Additionally, the Minimum Alternate Tax (MAT) for companies, or the Alternate Minimum Tax (AMT) for others set up as a unit in the IFSC, is set at a competitive rate of 9% of book profits.

Dividend income distributed by a company in IFSC is taxable in the hands of the shareholder. If the shareholder resides outside India, the tax rate is 10%, with the applicable surcharge and cess added on.

Moreover, services received by a unit in IFSC are exempt from Goods and Services Tax (GST). However, GST applies to services provided to the Domestic Tariff Area (DTA), and all transactions conducted in IFSC exchanges enjoy GST exemption.

State subsidies on lease rental, provident fund contributions, electricity duty, etc are also available.

Fintech Sandbox

To promote the innovation of ideas and solutions in financial services market, IFSCA also introduced dedicated Fintech sandboxes. Fintech startups can operate in the regulatory sandbox of GIFT City.  The regulatory sandbox provides a live environment with a limited set of real customers for a limited timeframe. 

Opening Bank Accounts in GIFT City

In a recent development, foreign entities have been granted the ability to open bank accounts with banking units in GIFT City without needing a Permanent Account Number (PAN) in India.

Startups can retain their funds in foreign currency and experience ease in repatriating funds outside India, adding to the convenience and attractiveness of setting up shop in GIFT City.

Conclusion

GIFT City stands as a beacon of innovation and financial prowess, attracting startups from finance sectors to leverage its unique offerings. With its unparalleled infrastructure, favorable tax regime, and robust regulatory framework, GIFT City is poised to play a pivotal role in nurturing and propelling India’s startup ecosystem to new heights.