Despite the thriving business of Gujarat International Finance-Tec City (GIFT City) in Gandhinagar, what is seen holding it back from becoming a buzzing global urban hub is the subdued social life and a lack of incentives for C-suite executives to relocate to country’s first smart city.

Informal interactions with top Indian and global corporate leaders across sectors revealed that despite running the businesses from GIFT City, these top decision-makers prefer flying down from Mumbai, Bengaluru, Singapore or Dubai.

GIFT City 2.0

“GIFT City offers a good platform to do business. But it hasn’t been able to offer a corporate-like lifestyle and social ecosystem for top corporate leaders who can relocate here,” said an executive with a leading financial institution operating from GIFT International Financial Services Centre (IFSC).

“The restrictions on foreign exchange movement from GIFT-IFSC to abroad is a deterrent for those employed here and earning in dollars,” said the representative of an MNC on condition of anonymity.

Also read: GIFT Nifty to have 21-hour trading in two sessions

RK Jha, who led the GIFT City project during 2007-2015, highlighted a few concerns, including tax structure for corporate and individuals, quality of life for executives and employees, besides the infrastructure for social, health, educational and recreational activities.

Deemed NRI, a way forward?

Speaking to businessline, Jha said: “Individual Indians earning in foreign exchange from multinational operations have to pay very high taxes. Therefore, there is considerable reluctance on the part of senior executives and decision-makers to shift to GIFT City,” said Jha, suggesting “suitable modifications in the existing rules of SEZ to enable persons working in the IFSC area and living in the notified area of GIFT Global Finance Business City to be treated as deemed NRI”.

But there are practical challenges to this concept. An Ahmedabad-based tax and policy expert, PK Modi, said: “There is no term called deemed-NRI in the Income Tax Act. Under the SEZ Act, there are benefits given to entities. But there is no scheme for individuals. A deemed NRI status is very difficult to carve out under the law, as there are FEMA and other regulations which would make it a complex structure.”

Injeti Srinivas, Chairman, International Financial Services Centre Authority (IFSCA), however, ruled out the possibility of considering relief to personal Income Tax. “All regulations that IFSCA has made, it has benchmarked them against the best regulations of any other regulatory regime. We are not opaque. We are not tax haven. There will be substantive benefits of coming here, but not for getting opaqueness.

Also read: Budget 2023: GIFT IFSC gets policy boost with regulatory simplifications, tax benefits

“India can’t afford to create a black box like other tax havens. If someone comes here and say make personal income tax zero, that won’t be possible...GIFT IFSC to India is what Hong Kong is to China. We are not competing with Dubai or Singapore.”

GIFT SEZ, and IFSC being its part, is a deemed foreign territory. It gives corporates freedom to operate as in a foreign country, but that’s the case with individuals who pay taxes under domestic Income Tax laws.

Last year, the Gujarat government had cleared GIFT City’s expansion from existing 1,000 acres, including 860 acre of core area, to about 3,300 acres to develop a world-class Global Finance Business City. Jha suggested notifying GIFT City as a National City directly under the Central government’s control, which would make framing and implementation of laws easier.

“GIFT City’s development will taper off if timely efforts are not made to attract people here and develop the additional area,” added Jha.

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