Budget expectations 2026: Deloitte pitches parity rules, compliance clarity to scale IFSC GIFT City as global BFSI hub

With global banks, broker-dealers and capital markets players weighing India as an offshore financial base, Deloitte has urged the government to use Budget 2026 to have parity rulesa among players, remove tax asymmetries and compliance frictions that are limiting the scale-up of IFSC GIFT City as a full-service international BFSI hub.According to Deloitte, the International Financial Services Centre at GIFT City has emerged as a focal point of India’s economic ambitions in banking, capital markets, insurance and allied financial services. The International Financial Services Centres Authority (IFSCA) is tasked with developing IFSCs into diversified, globally competitive hubs that serve both India and the wider regional financial ecosystem.Deloitte said this objective rests on building a pro-business environment supported by a progressive regulatory framework, advanced technology and infrastructure, and a strong pool of skilled financial professionals.“To further enhance IFSC GIFT City’s stature as a premier international financial services hub, certain tax and regulatory refinements may be considered in the Budget,” said Vijay Mani, Partner and Banking & Capital Markets Leader, Deloitte India.Parity for broker-dealers and finance companiesOne of the key recommendations is to grant broker-dealers and finance companies operating from IFSC GIFT City the same tax treatment as International Banking Units (IBUs) set up by foreign banks.While the IFSCA already permits IBUs and SEBI-registered FPIs operating from GIFT City to issue Offshore Derivative Instruments (ODIs) and over-the-counter (OTC) derivatives with Indian underlying securities, the income-tax law currently provides broader exemptions to IBUs than to non-bank entities.Although the Income-tax Act was amended in 2025 to exempt non-resident investors from tax on income earned from ODIs and OTCs issued by non-bank entities from GIFT City, Deloitte noted that capital gains exemptions remain restricted to the investment divisions of IBUs of foreign banks.“The Income-tax law does not confer a similar tax treatment to broker-dealers and finance companies that operate from IFSC GIFT City,” Deloitte said, recommending that such entities be treated on par with IBUs for capital gains tax exemptions. This, it said, would help bring offshore access products markets onshore to India.GAAR exemption to boost tax certaintyDeloitte has also sought exemption from the applicability of India’s General Anti-Avoidance Rules (GAAR) for IFSC units and transactions involving them.Citing the OECD’s BEPS Action Plan 5 on harmful tax practices, Deloitte noted that IFSC units are already required to demonstrate significant economic substance, including physical offices, employees and regulated operations under IFSCA oversight.“In this context, and to provide tax certainty while attracting more businesses to IFSC–GIFT City, an exemption from the applicability of Indian GAAR provisions should be granted,” Deloitte said, covering both IFSC units and arrangements entered into with them.Relief from transfer pricing disputesAnother major concern flagged relates to section 92C(4) of the Income-tax Act, which denies IFSC units the benefit of the 100 percent income-tax holiday under section 80LA on income enhanced through transfer pricing adjustments.Deloitte warned that this provision could lead to unnecessary litigation and undermine global confidence in the tax certainty offered to IFSC units.“This creates an impression that even if an IFSC unit is entitled to a 100 percent income-tax holiday, it may still be required to pay taxes in India due to transfer pricing adjustments,” said Russell Gaitonde, Partner, Deloitte India. He added that exempting IFSC units from section 92C(4) would strengthen India’s credibility as a financial hub.Removing TDS on payments to IFSC unitsDeloitte has also recommended removing tax deduction at source (TDS) on all payments made to IFSC units that are eligible for the 10-year, 100 percent tax deduction under section 80LA.While a CBDT notification issued in March 2024 already provides TDS exemption for certain specified payments, Deloitte said extending this relief to all payments would significantly reduce compliance burdens and improve ease of doing business.“Considering that the income of IFSC units is not taxable, all payments made to units in IFSC on which section 80LA deduction is available should be exempted from TDS,” Deloitte said, adding that reporting safeguards could continue to ensure regulatory oversight.The recommendation is also relevant for foreign banks operating IBUs in GIFT City, regardless of whether they have obtained nil withholding tax orders under section 195(3).Deloitte said these measures, if incorporated in Budget 2026, would enhance tax certainty, attract global financial institutions and help IFSC GIFT City emerge as a competitive alternative to established offshore financial centres.