India’s evolving corporate tax landscape is undergoing a strategic shift, with reforms aimed at enhancing investor confidence, boosting global competitiveness, and streamlining compliance. From International Financial Services Centre (IFSC) incentives to capital gains restructuring and the abolition of the Angel Tax, recent changes signal a pro-growth, forward-looking taxation regime.
In the recent amendment, the Venture Capital Funds (VCFs) regulated by the IFSC have been exempted from cash credit provision, wherein cash credits in the hands of a taxpayer can be subject to higher rates of tax unless the taxpayer can explain the source of such credits to the satisfaction of the revenue authorities.
The IFSC is presently set up in the Gujarat International Finance Tech City (GIFT City).
Meanwhile, under Section 94B of the IT Act, companies which have been regulated by the IFSC, have been exempted from the thin capitalization which prescribes certain restrictions on the deduction of interest expense that is incurred by a borrower in relation to a debt issued by an associated enterprise.
Under Section 10(4D), income earned by “specified funds” from transactions in securities on a recognised stock exchange in the IFSC is exempt from tax.
In a landmark move, the controversial “Angel Tax,” which taxed excess share premium from non-residents as income in the hands of startups, has been abolished effective April 1, 2025. Introduced in 2012 to curb money laundering, the provision had drawn criticism for stifling startup fundraising. The repeal is widely welcomed as a pro-investment step.
The Finance Act 2024 brought key changes with respect to capital gains tax with effect from 23 July 2024; only two minimum holding periods, 12 or 24 months, have been stipulated to classify a capital asset as short term and long term, respectively.
Gain on the transfer of equity shares, units of an equity-oriented mutual fund and of a unit of business trust which has suffered securities transaction tax (STT) and been held for 12 months or less will be subject to tax of 20% as against the existing rate of 15%. If the same is held for more than 12 months, the rate of tax would be 12.5% as against the existing rate of 10%.
In recent rulings, the Delhi High Court upheld the sanctity of Tax Residency Certificates (TRCs), asserting they cannot be dismissed solely due to tax-friendly jurisdictions. Meanwhile, a full bench ruled that profits attributable to Indian PEs can be taxed despite global losses, reinforcing the independence of PE taxation.
These comprehensive changes underscore India’s commitment to aligning with global tax standards while making its financial ecosystem more attractive to international investors and institutions.
