Special Tax Zones Beyond SEZs: GIFT City, EODB Zones & Tax Benefits
Introduction
India’s push to attract global capital and speed up investment has moved beyond traditional SEZs. New special tax zones — notably GIFT City (IFSC) and a raft of state-level EODB (Ease of Doing Business) zones / single-window corridors — offer targeted tax concessions, customs relief and regulatory advantages. In this article you’ll learn what those concessions are, how compliance works, and whether your business (including those in Maharashtra and Kolhapur) should consider setting up there. (api.giftgujarat.in)
What are Special Tax Zones beyond SEZs?
Beyond classic SEZs, India has been rolling out special purpose zones that provide faster clearances and fiscal concessions to targeted sectors:
- GIFT City (Gujarat International Finance Tec-City) with an International Financial Services Centre (IFSC) — aimed at financial services, funds, leasing & cross-border transactions. (api.giftgujarat.in)
- EODB zones / Single-Window Clusters — state-led investment enclaves that fast-track approvals, offer land & fiscal incentives, and reduce red tape to improve the “ease of doing business”. (LinkedIn)
These zones are designed to combine tax incentives with regulatory certainty to attract capital and specialized activity.
GIFT City / IFSC — Key Tax & Regulatory Benefits
GIFT IFSC has emerged as India’s flagship “tax-friendly” financial hub. Key advantages for units in IFSC (summary of the most important benefits):
- Tax holiday: 100% tax exemption for a defined period (commonly 10 out of 15 years for eligible IFSC activities). (api.giftgujarat.in)
- Reduced or exempt transaction taxes: many IFSC transactions are free from domestic STT/commodity transaction tax, and certain GST/stamp duty relaxations may apply. (investmates.io)
- Favourable treatment for fund vehicles & NRI investors: streamlined tax & repatriation rules attractive for funds, FPIs and international investors. (investmates.io)
- Regulatory clarity & IFSC framework: IFSC units are regulated by IFSC Authority and can transact in foreign currencies and cross-border deals under a tailored rulebook. (ifsca.gov.in)
Budget 2025/2024 updates have extended and reinforced IFSC incentives, increasing certainty for new entrants. (SOBHA Limited)
EODB Zones & State Single-Window Initiatives — What to Expect
States are launching EODB corridors / investment zones that may not mimic every SEZ benefit but offer practical advantages:
- Single-window approvals — industry clearances, land allotment, environment consents routed via one portal to cut delays. (LinkedIn)
- State fiscal incentives — concessional electricity tariffs, stamp duty rebates, property tax holidays or capital subsidies (varies by state).
- Clustered infrastructure — plug-and-play facilities reduce capex and speed time-to-operation.
These incentives are typically state-specific (e.g., Maharashtra, Gujarat, Tamil Nadu), so evaluate local policies and time-limits carefully.
Typical Tax Concessions & Customs/GST Relief
Here are the most common fiscal advantages you’ll see across special zones (GIFT City + selected EODB programs):
1. Direct Tax Holidays / Reduced Rates
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IFSC: long-term tax holiday for eligible financial services and fund management activities (selectable block of years). (ifsca.gov.in)
2. Transaction Tax & GST Relief
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Many IFSC transactions enjoy exemptions from STT, commodity transaction tax, and some GST/ST duties on offshore flows. (investmates.io)
3. Customs / Import Benefits
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SEZ/IFSC units get duty-free import of inputs and capital goods for specified activities; some EODB projects may secure customs concessions for critical machinery. (PwC Tax Summaries)
4. Ease of Capital Repatriation
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IFSC units often have simpler repatriation and foreign-currency settlement rules which benefit funds and international anchors. (api.giftgujarat.in)
Important: benefits are conditional — linked to activity type, export orientation, timelines and meeting local-value addition conditions. Always verify scheme notifications before committing. (ifsca.gov.in)
Compliance Requirements & Traps to Watch
Setting up in a special zone gives relief — but compliance is non-negotiable:
- Eligibility criteria: IFSC/zone benefits are for specific activities (e.g., fund management, international banking, finance, software services) — check the statutory list. (ifsca.gov.in)
- Substance & economic logic: Tax authorities scrutinize “shell” arrangements. Maintain local personnel, audited books, and genuine business activity.
- Time-limited incentives: Many concessions have sunset clauses or require activation by a certain commissioning date. (SOBHA Limited)
- Interplay with domestic tax rules: Some benefits (e.g., tax holiday) may affect other tax positions (MAT, carry-forward of losses). Get early tax modelling.
- Cross-border reporting & FATCA/CRS: IFSC/fund players must comply with global reporting standards; missteps can stall repatriation or investor onboarding.
Pros & Cons — Commercial and Tax Considerations
Pros
- Significant tax savings (IFSC tax holiday, transaction tax exemptions). (ifsca.gov.in)
- Better access to global capital & fund structures. (investmates.io)
- Regulatory clarity in a single jurisdiction (IFSC authority + single-window).
Cons
- Cost: premium land / office cost vs operating in tier-2 locations.
- Complex setup & reporting: specialized legal and tax compliance needed.
- Limited to eligible activities: manufacturing or pure domestic trading typically don’t qualify.
- Time-bound benefits: incentives can be extended but are not perpetual. (SOBHA Limited)
Case Study: When a Maharashtra SME Should Consider GIFT City
Scenario: A Pune-based fund manager wants to launch an India-focused offshore fund and attract NR investors. Options:
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Set up a fund vehicle in GIFT IFSC: benefits include fund-level tax efficiency, repatriation flexibility and 10-year tax holiday for eligible fund structures. This helps attract foreign LPs while maintaining governance standards. (ifsca.gov.in)
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Set up in Maharashtra + feeder offshore fund: less regulatory overhead locally, but more friction for international investors and potentially higher tax leakage.
Takeaway: For fund managers, IFSC offers real tax & distribution advantages; for a pure domestic services SME, EODB zone in Maharashtra might be more practical.
Checklist: Deciding If a Special Zone Is Right for You
- Is your activity eligible (financial services, fund management, cross-border trade)?
- Will tax holidays or customs relief materially improve IRR?
- Can you maintain substance (local staff, office, audited accounts)?
- Are you prepared for additional reporting and global compliance (FATCA/CRS)?
- Do state incentives (Maharashtra) for a local EODB cluster match your business needs?
FAQs
Q1: Is GIFT City only for large financial firms?
No — GIFT IFSC is targeted at financial activities (banks, fund managers, insurance, fintech). Smaller fund managers and fintechs can benefit if their activity qualifies. (ifsca.gov.in)
Q2: Can manufacturing units use IFSC or EODB benefits?
IFSC is not for typical manufacturing. Some EODB zones or state industrial policies may offer manufacturing incentives — check state-specific schemes. (LinkedIn)
Q3: Are SEZ benefits still relevant after EODB reforms?
Yes — SEZ tax and customs benefits remain attractive for export-oriented manufacturers; EODB zones focus more on procedural ease and state incentives. (India Briefing)
Q4: How long do IFSC tax holidays last?
Commonly, IFSC tax holiday is structured as 10 years out of 15 (subject to scheme rules and extensions). Recent policy moves extended certainty for businesses through 2030. (ifsca.gov.in)
Q5: Will setting up in a special zone reduce compliance work?
Not necessarily; reporting may be different but often more rigorous (international reporting standards). You may need specialist tax and legal support.
Conclusion & Next Steps (CTA)
Special tax zones beyond SEZs — especially GIFT City (IFSC) and state EODB zones — present real, targeted benefits for the right kinds of businesses: funds, IFSC-eligible financial services, and firms needing easier cross-border operations. However, they require careful eligibility checks, substance planning and compliance.
If you’re a startup, SME or fund evaluating a special zone (from Kolhapur, Pune or anywhere in Maharashtra), Verotus Finlegal Solutions LLP can help:
- Assess eligibility and model tax impact
- Prepare IFSC / SEZ / state incentive applications
- Set up compliant entity structures and ongoing reporting
Book a free consultation with Verotus LLP to map a tax-efficient setup for your business.
📍 Verotus Finlegal Solutions LLP — Kolhapur, Maharashtra
🌐 www.verotusllp.com | 📞 +91-7066336680
