India’s Gujarat International Fin-Tech City (GIFT City) is positioning itself as a serious player in the global ship leasing space. With a strong legal framework, generous tax holidays, and regulatory ease, the International Financial Services Centres Authority (IFSCA) has rolled out a clear and practical structure for businesses to set up ship leasing operations within the IFSC zone. This blog breaks down the framework using the exact same categories outlined in the original release — including entity setup, tax incentives, GST implications, and other critical benefits.
Background
India’s maritime sector has always played a key role in the nation’s economy, thanks to its long coastline and its importance in international trade routes. But despite this natural advantage, many large shipping operators have historically preferred to base their leasing operations in regions like Singapore, Dubai, and Hong Kong.
This was mainly due to friendlier tax regimes, flexible compliance frameworks, and globally integrated business environments. India, until recently, lacked a comparable option.
GIFT City was set up to change that. Declared a multi-service Special Economic Zone (SEZ) in 2015, GIFT City was designed as a hub for international financial services. Initially, its success was seen in aircraft leasing and banking services. Now, the government is extending similar benefits to the ship leasing industry.
The Framework for Ship Leasing was introduced on 16th August 2022 by the IFSCA. This new structure offers legal clarity and financial advantages that align India with other international maritime hubs.
IFSCA implications
The IFSCA framework lays down the core requirements for any business looking to operate in ship leasing from GIFT City.
- Entity Setup
Businesses can establish themselves in GIFT City in multiple forms:- Company
- LLP (Limited Liability Partnership)
- Trust
- Branch of an existing firm
This flexibility allows both domestic and international players to participate without being forced into a one-size-fits-all structure.
- Activities Permitted
The registered entity must engage in:- Operating leases
- Finance leases
- Hybrid lease models (a mix of operating and finance leasing)
This covers a wide range of business models under the same umbrella, giving room for innovation.
- Registration Requirements
Every business must register as a lessor with IFSCA by submitting the appropriate application. - Capital Requirements
The amount of owned capital you need to maintain depends on the type of leasing:- USD 200,000 for operating lease entities
- USD 3 million for those offering finance or hybrid leases
These thresholds ensure that only financially stable businesses enter the space.
- Currency Operations
All transactions must be in freely convertible foreign currency. However, businesses are permitted to maintain an INR account for administrative expenses like salaries, rent, and utilities. - Legal Compliance
All ship leasing activities must comply with India’s Merchant Shipping Act, 1958. This ensures that despite being in a special financial zone, operations stay aligned with national maritime law.
Tax holiday benefits
Businesses in the IFSC zone are considered residents for income tax purposes, meaning their global income can be taxed. But here’s the catch — they also get a 10-year tax holiday.
What does this mean?
- The business gets 100% exemption on its business income for any 10 consecutive years out of a 15-year block.
- The 10-year period is flexible — the business can choose when to start this tax-free window.
- This allows entities to align their exemption with projected revenue peaks, helping them maximise profit retention.
Applicable Tax Rates:
| Entity Type | Normal Tax Rate | MAT / AMT |
| Company | 0% (during tax holiday) | 9% (MAT not applicable if lower regime is chosen) |
| LLP | 0% (during tax holiday) | 9% |
In short, this is one of the most attractive tax setups in India — and it’s specifically designed to pull global shipping businesses into GIFT City.
Other income tax benefits
Besides the headline 10-year tax holiday, the framework also offers several specific exemptions that make operations smoother and more financially efficient.
1. Capital Gains Exemption
If a leased ship is sold or transferred during the tax holiday period, the gains from that transaction will not be taxed — provided:
- The IFSC entity commenced operations on or before 31st March 2024, and
- The ship was already under a lease by the time of transfer
This encourages long-term asset deployment and makes leasing a ship more financially viable.
2. No Withholding Tax
Two key exemptions apply here:
- No withholding tax on royalty or interest payments made to a non-resident in relation to lease agreements.
- No withholding tax on interest payments to non-resident lenders who fund ship acquisitions or operations.
Again, these measures are designed to reduce the friction and cost typically involved in cross-border financing.
Corporate law and exchange control provisions
GIFT City isn’t just about tax incentives. It also provides key compliance relaxations that reduce the burden of running a business.
1. Exchange Control Status
Entities in the IFSC are treated as persons resident outside India under India’s FEMA laws (Foreign Exchange Management Act). This changes how their transactions are regulated:
- Deals with Indian residents fall under FEMA rules.
- Deals with non-residents do not fall under FEMA, giving more freedom in international operations.
2. Board Meeting Requirements
IFSC entities need to hold only two board meetings per year — one in each half. This is more lenient than the standard quarterly meeting requirement.
3. Layering Exemptions
Companies in GIFT City are exempt from layering restrictions under Section 186(1) of the Companies Act. That means they can create more complex financial structures without breaking compliance.
4. CSR Relaxation
The Corporate Social Responsibility (CSR) obligation does not apply for the first five years after a company begins operations in the IFSC.
5. Director Appointment Exemptions
There’s no requirement to appoint a woman director or an independent director, which makes the setup process leaner for foreign branches and smaller entities.
Together, these provisions simplify management and give businesses more freedom to structure their operations efficiently.
GST Implications
Indirect taxes can make or break a leasing transaction. The GST implications under this framework have been carefully structured to support international business.
1. Supplies to IFSC Units
- Supplies made to an IFSC ship leasing unit are treated as “zero-rated supplies”
- No GST is charged, provided the supplier has a valid Letter of Undertaking (LUT)
This allows suppliers to claim input tax credit without passing GST costs to the IFSC unit.
2. Imports by IFSC Units
- Imports of goods or services are not subject to GST under the Reverse Charge Mechanism (RCM), if used for authorised operations
This reduces cash outflow at the time of import and simplifies accounting.
3. Leasing to Domestic Clients
- If a ship is leased to a Domestic Tariff Area (DTA) unit, IGST will be applicable
- This ensures parity with domestic taxation norms
4. Leasing to Foreign or SEZ Clients
- No GST is levied if the lessee is located:
- Outside India
- In another IFSC unit
- Or in an SEZ
This makes GIFT City-based ship leasing highly competitive for international clientele, as it avoids cascading tax.
Final thoughts
The GIFT City framework for ship leasing isn’t just a regulatory update — it’s a bold invitation for the world’s maritime finance leaders to consider India as their next hub.
With flexible entity structures, predictable tax holidays, reduced compliance load, and internationally aligned currency rules, this setup checks all the boxes. For companies already in aircraft leasing or those new to maritime finance, this framework offers a practical, profitable, and globally competitive way to scale.
And with a deadline of 31st March 2024 for key exemptions, the time to act is now.
