BUDGET 2024: A CATALYST FOR FINANCIAL INNOVATION AND FINTECHS
The Indian government has been introducing pivotal reforms in the Budget to bolster the economy and increase the attractiveness and competitiveness of the International Financial Services Centre (IFSC) globally. These reforms will help foster a robust financial ecosystem, capable of supporting the nation’s ambitious economic goals of becoming a developed country. The 2024 Budget is a curious wait for foreign organisations looking to enter India as well as the IFSC. The aim is to enhance the organisational reach of such foreign companies not only in India, but across the world.
Expectations and Potential Way Forward
IFSC
Leveraging Further Tax Benefits: One of the key reforms mooted is the exemption of withholding tax on payments made to IFSC units located in the IFSC, irrespective of whether the payee is a resident or not. A declaration during the setting up phase shall settle things, simplifying regulatory procedures and promoting a conducive business environment within the IFSC. This exemption is crucial for IFSC units benefiting from tax holidays, offering the dual advantage of increased liquidity and reduced compliance burden. Further, units set up in IFSC before inception of International Financial Services Centre Authority (IFSCA), should have increased and continuous tax exemptions.
Fostering Investor Confidence: Specific clarity is sought on the classification of investments in Family Investment Funds (FIFs) under the overseas investment regime to classify such investments as Overseas Portfolio Investment. With the Reserve Bank of India (RBI) still sceptical on the money outward routes from IFSC, the effort should be to streamline the regulatory framework and provide certainty for investors. Such regulatory clarity is key to attracting foreign investment and bolstering the IFSC’s role as the preferred hub for international finance.
Balancing Inbound and Outbound Investments: Despite the established tax regime for inbound investments into IFSC, there remains a notable gap in the tax treatment of outbound funds originating from these centres. Addressing this disparity is imperative for aligning India’s IFSCs with other global financial centres and ensuring their competitiveness in attracting outbound investments.
Ultimately, the recommended reforms will provide an essential foundation for developing a strong financial regime for investors in the IFSC.
INDIA
Empowering India’s FinTech Sector:
India’s FinTech industry is expected to contribute $400 billion by 2030, significantly enhancing the country’s goal of becoming a $5-trillion economy. With rising concerns in the cybersecurity domain, the upcoming Budget needs to focus on implementing a national cybersecurity policy, backed by stronger public-private partnerships, training programmes and subsidies to promote investments in research and development and ensuring stringent data protection norms to secure sensitive information.
FinTechs expect incentives including exempting smaller companies from GST filings, tax benefits on total expenditure for companies that prioritise last-mile empowerment and increasing the capital availability for operating in underserved domains like rural credit, digital payments and digital lending. Allocation of higher funds and incentivising AI adoption to enhance India’s competitiveness will further contribute to stimulate innovation, foster financial inclusion, and solidify India’s worldwide FinTech prominence, resulting in the overall development of a vibrant and diverse financial ecosystem.
India’s continuous efforts to support the fintech industry and deal with cyber security concerns are creating the foundation for a strong and resilient financial system, which is necessary for maintaining long-term economic growth.
Considerations
These reforms will enable India to create a conducive environment for financial innovation, attract global investments, and propel its journey towards becoming a $5-trillion economy. These Budget expectations not only underscore India’s commitment to leveraging the IFSC as a catalyst for economic transformation, but also moving towards a much independent Atmanirbhar India, as constantly advocated by the Prime Minister of the country.
As always, expectations from the annual Budget are high. It provides the newly-reinstated government an opportunity to establish a framework to boost economic growth through policy announcements and tackle the country’s structural challenges.
For further information, please contact:
Ketaki Gor Mehta, Partner, Cyril Amarchand Mangaldas
ketaki.mehta@cyrilshroff.com
