“Deemed dividend” clause exemption to encourage setting up of Global Treasury Centres in GIFT City: IFSCA on Union Budget

Indian and foreign corporates will be encouraged to set up large treasury operations in GIFT IFSC in Gujarat, after the Union Budget on Saturday proposed to exempt the “deemed dividend” clause impacting the Global Treasury Centres, said International Financial Services Centres Authority (IFSCA).

The Finance Bill proposes that the provisions of deemed dividend shall not apply to Treasury centres in IFSC on any advance or loan between two group entities. This will applicable if one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services; and the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India, (other than that as specified by the Board). 

K Rajaraman, chairperson of IFSCA told businessline, “This step improves the viability of the treasury centres set up in GIFT City. In Singapore or Hong Kong, these kinds of deemed dividend clauses do not exist. Therefore they are more competitive. Here the idea is to get some of the treasury centres which are India focused to come back to India.”

• Read also:Union Budget 2025 Highlights & Announcements: No income tax payable up to income of ₹12 lakh in New Tax regime

“Our Global Treasury Centre framework is likely to be upgraded in the next fortnight. We are trying to overhaul our systems and make it attractive for Indian multinational companies to set up their treasury centres here,” Rajaraman added. A treasury centre acts as an in-house bank in any multinational corporation. The two main objectives are centralised management of funds and use of global funds for the group. The treasury centre functions include intra-group financing, cash and liquidity management and financial advisory. Public Sector Units like ONGC Videsh Ltd and Indian Oil Corporation have launched their respective Global Treasury Centres st GIFT City that will manage treasury operations of their international assets and also raise funds. The first treasury centre operated by IOC is already live and has reached about USD 250 million of operations.

Similar views were expressed by Kumarmanglam Vijay, Partner, Head of Practice-Direct Tax, JSA Advocates and Solicitors regarding the “deemed dividend” clause for treasury centres. “It is proposed to keep the loans and advances given by a global or a regional corporate treasury centre set up in GIFT City as a finance unit for undertaking treasury activities or treasury services to another group entity outside the purview of deemed dividend tax provisions provided, the parent entity is listed on a stock exchange outside India. This should help overseas entities intending to set up a regional treasury centre in IFSC,” Vijay said.

Insurance and ship-leasing

The NRI retail insurance business and ship leasing activities in GIFT City are expected to get a major fillip after the Union Budget provided exemptions to both these businesses. “The Budget 2025 proposal to exempt the proceeds received from life insurance policies issued by International Financial Services Centres (IFSC) insurance intermediary offices, without imposing a maximum premium condition, is set to significantly enhance the attractiveness of the life insurance business for insurers. The broader context of increasing FDI limits in the insurance sector from 74% to 100% complements this proposal. IndiaFirst Life Insurance Company was the first life insurance company to operate within the Gujarat International Finance Tec City (GIFT City) International Financial Services Centre (IFSC) in 2023,” says Sharat Chandra, Founder, EmpowerEdge Ventures, a startup enabler platform with a focus on web3 and emerging tech startups.

The Union budget also extends the exemptions provided on capital gains and dividend for aircraft leasing entities in GIFT City, to ship leasing as well.  “The government continues to position GIFT City as a global financial hub, offering tax and regulatory incentives to attract specialized businesses, including treasury centres, insurance providers, and ship leasing companies. Insurance entities—particularly those in reinsurance—can benefit from a friendlier regulatory framework that aims to compete with offshore locations by lowering tax costs and streamlining processes. Meanwhile, ship leasing and financing activities also receive targeted incentives to encourage companies to use GIFT City as a base for global maritime finance, putting India in closer competition with established international shipping hubs. Overall, these measures are designed to deepen GIFT City’s position as an International Financial Services Centre by lowering tax burdens and easing compliance hurdles, thereby encouraging more global firms to bring their operations onshore to India,” said Raheel Patel, Partner, Gandhi Law Associates.