The government may allow chartered accountants to service non-financial services clients from the International Financial Services Centre at GIFT City, Gujarat, a move that may prompt Indian and global chartered accountancy firms to set up shop at the financial services hub.

IFSC’s current ancillary framework allows accounting firms registered in IFSC to service only IFSC and overseas entities engaged in the financial services sector.

The relaxation will level the playing field with CA firms that operate from the mainland that have no such restrictions and can cater to clients across sectors.

Tie-ups with Indian firms

It may pave the way for foreign consulting firms to enter into tie-ups with Indian CA firms at IFSC and outsource some of their accounting work to GIFT IFSC.

At present, only a handful of CA firms have registered at GIFT IFSC, primarily because most Indian CA firms do not cater to a sizeable number of overseas clients in the financial services sector. The units based in IFSC have to generate export income or foreign exchange to take a registration and avail of tax benefits.

“Global CA firms setting up offices at GIFT will be able to avail of Indian talent at a cheaper cost. Indian CA firms will be motivated to set up at GIFT because of the tax benefits. These firms will now be able to cater to diverse clientele across sectors from pharma to automobiles to banking,” said a person with a global accountancy firm.

10-year tax holiday

CA firms setting up shop or subsidiaries at GIFT IFSC will be able to avail of a tax holiday for 10 years on the fee income earned.

“There is a need for parity between the large global and homegrown accounting firms. At present, having a certain number of overseas clients from the financial services sector on the roaster is a major requirement for obtaining the ancillary services licence. Having a wider permissibility that allows firms to cater to non-financial sectors for overseas clients as well as those from the mainland (subject to tax implication), may provide a level playing field for setting up shop at GIFT IFSC,” said a chartered accountant who is a partner at a consulting firm.

The Big Four firms typically have a larger financial services client portfolio compared to local CA firms in India. At present, it may not be viable for large Indian firms catering to, say, 200-300 non-FS clients and 10-15 FS clients to shift to GIFT as the cost of administration and hiring employees at GIFT may offset any tax benefit, said experts.

“A CA firm wanting to set up an office at GIFT will need to generate enough revenues to justify the cost of doing so,” said Ameet Patel, Partner, Manohar Chowdhry & Associates. “As it stands, the scope of work for Indian CA firms at GIFT is very limited as most do not service overseas clients. Real estate is not cheap and CAs need to be able to afford the trip from Ahmedabad to Gandhinagar every day. It would take another 3-4 years for me to seriously consider setting up an office there.”

An email sent to International Financial Services Centres Authority did not get a response.

Over 3 lakh CA professionals in India are registered with the Institute of Chartered Accountants of India. About 200-300 Indian CA firms meaningfully cater to overseas clients at present, according to industry estimates.

The regulator had introduced the ancillary services framework in February 2021. This was for those providing legal, compliance, secretarial, auditing, accounting, bookkeeping, taxation and management consulting services.

comment COMMENT NOW