Recently, the International Financial Services Centre Authority (“IFSCA”) issued a notification (“Notification”) specifying operating leases, including any hybrid of operating and financial leases, in respect of ‘oilfield equipment’ as a financial product under Section 12 of the International Financial Services Centres Authority Act, 2019 (“IFSCA Act”).

I. Introduction to GIFT City

The International Financial Services Centre (“IFSC”) at Gujarat International Finance Tec-City (“GIFT City”) is a special economic zone located geographically in Gandhinagar, Gujarat, India and is a rapidly growing hub for global financial services. In India’s exchange control economy, GIFT City is aimed to cater to the global financial services market while physically being in India to provide Indian talent pool opportunities onshore. An IFSC caters to the customers outside the jurisdiction of domestic economy. GIFT City provides financial services to customers outside the country, operating under a distinct regulatory and tax framework designed to compete with leading global financial centres such as Singapore, Hong Kong, and Dubai.

II. ‘Oilfield Equipment’ as a Financial Product Classification

Notification of a product as a financial product under Section 12 of the IFSCA Act makes it permissible for an entity registered in GIFT City to undertake activities related to that product / services, within GIFT City. The benefits of financial product classification include: (a) access to the favorable tax and regulatory regime available in GIFT City (elaborated below); and (b) the ability to operate under a unified regulatory framework rather than navigating multiple domestic regulators, among others.

The term ‘oilfield equipment’ refers to the goods used in connection with an oilfield, as specified in the list annexed to the table provided in Notification No. 3/2017-Central Tax (Rate), dated June 28, 2017, issued by the Ministry of Finance, Department of Revenue, which inter alia includes all types of drilling rigs and marine vessels to support petroleum operations. The term ‘oilfield’ is defined under the Oilfields (Regulations and Development) Act, 1948 to mean ‘any area where any operation for the purpose of obtaining mineral oils, refined oil, partially refined oil and any of the products of petroleum in a liquid or solid state, is to be or is being carried on’.

III. Tax Holidays and Depreciation – Key Benefits for IFSC

Entities setting up oilfield equipment leasing operations in GIFT City would be entitled to avail the attractive tax incentives available to IFSC units under the Income-tax Act, 2025 (“IT Act”). Some of the benefits are broadly set out as follows:

1. 100% Tax Exemption on Business Profits: IFSC units are entitled to a 100% deduction of profits and gains derived from eligible business activities for any 20 consecutive assessment years out of 25 years of operation, at the option of the company.
2. Minimum alternate tax (MAT): An option of MAT at the rate of 9% of book profits is available which would otherwise be 14%.
3. Exemption from Goods and Services Tax (‘GST’): Services provided by IFSC units to offshore clients, other IFSC units or other entities in GIFT City are exempt from GST, making operations more cost-efficient.
4. Exemption from Stamp Duty: Instruments executed in GIFT City relating to transactions within the IFSC are exempt from stamp duty, reducing transaction costs.
5. Accelerated Depreciation: The assets (including ships and aircrafts) are allowed to depreciate at 40% of the written down value, which can be carried forward indefinitely and set-off against future profits (no time limit applicable).

IV. IFSCA Framework for oilfield equipment leasing

While the Notification permits oilfield equipment leasing as a financial product, we understand that the detailed regulatory framework governing such activities is currently being developed by the IFSCA. Given the precedent set by the ship leasing and aircraft leasing frameworks, we understand that the oilfield equipment leasing framework may similarly address aspects such as registration requirements for leasing companies, capital adequacy norms, permissible lease structures, and compliance obligations.

Until the detailed framework is issued, entities interested in setting up oilfield equipment leasing operations in GIFT City should engage with the IFSCA to understand the interim requirements and obtain necessary approvals.

V. Strategic Implications

The Notification comes at a strategically significant time, aligning with India’s broader push toward self-reliance in critical sectors. India’s oil and gas exploration activities have gained considerable momentum in recent years, with exploratory initiatives in the Andaman and Mahanadi basins expanding the country’s hydrocarbon potential. This increased exploration activity is expected to drive demand for specialized oilfield equipment, and the Notification depicts a much awaited development to support this growth by enabling efficient access to such equipment through leasing arrangements.

VI. Conclusion

The Notification represents a significant milestone in IFSCA’s efforts to expand the range of financial products and services available in GIFT City beyond aircraft and ship leasing. By notifying oilfield equipment leasing as a financial product, we understand that IFSCA proposes to create a framework to support India’s growing oil and gas exploration activities while positioning GIFT City as a competitive regional hub for equipment leasing services, attracting international leasing companies and creating opportunities for domestic financial institutions to participate in structured financing arrangements. Given the projected growth in India’s exploration area and the global trend towards leasing rather than purchasing capital intensive equipment such as oilfield equipment, this development has the potential to be transformative for India’s energy sector.