The Ministry of Finance’s notification of Rules of Origin under the India-UK FTA arrived in the same window as a full TDS exemption on aircraft and ship lease rentals routed through GIFT City, and a fresh wave of Section 148 notices reopening FPI books for retrospective audit. None of these three is, on its own, a departure from where India’s cross-border fiscal landscape has been heading for some time. Read together, they confirm that the margin in cross-border structuring has moved decisively from the rate itself to the compliance frameworks sitting underneath it.
The FTA’s Quiet Complexity
The headline on the India-UK FTA was always going to be the tariff line. The Rules of Origin schedule is where the actual work now sits.
- i) Product-transformation thresholds and certificate-of-origin requirements determine, transaction by transaction, whether zero-tariff treatment is available at all.
- ii) The treaty’s creative-sector co-production provisions (the “Reel Deal” framework) extend this same logic to intangibles: joint capital structures and IP protections across UK-India media production that only deliver their tax benefit if the underlying corporate architecture is built to the treaty’s specification from the outset, not adjusted to fit it afterward.
iii) The concurrent entry into force of the India-Israel BIT reinforces the same pattern elsewhere: protection exists on paper for structures built correctly, and is largely irrelevant to structures that aren’t.
GIFT City’s Liberalisation, and the Audit Wave Running Against It
The GIFT City TDS exemption is genuine liberalisation. There is full relief on lease-rental payments to IFSC-based aircraft and ship leasing units, bringing the jurisdiction into closer alignment with Dublin, Singapore, and Dubai on cost of capital. It is arriving, however, at the same moment the Income Tax Department is issuing Section 148 notices reopening historical FPI and offshore fund structures for retrospective review. This review is being done in some cases where no dividend or profit income was ever booked domestically during the audited years. Record FPI allocations into Indian sovereign debt, following index inclusion, are landing directly into this environment. The liberalisation and the audit wave are not contradictory signals from an incoherent regulator. They are the same regulator drawing a sharper line between structures built to survive scrutiny and structures that were never tested against it.
What This Changes for Corridor Work
None of this – the Rules of Origin schedule, the GIFT City exemption, BIT protection, does anything for a client whose structure was decided without it in mind. That much is unremarkable. What’s less often said out loud is that this leaves two different services on offer to a client structuring into India now: getting the formation right the first time, or defending a formation that wasn’t. Both very different skills, with very different billing.
This changes what “getting ahead of it” actually means for a firm advising on India-linked capital. It is not a matter of faster turnaround once a client raises the FTA or GIFT City as a topic. It is a question of whether the firm’s read on where these three developments interact is current enough to shape a client’s structure before formation, rather than to defend it after the fact. A firm’s usefulness to a fund or corporate client choosing where to locate a structure depends on which of the two it is actually offering, and that is usually visible to the client well before it is visible to the firm.
Lawfinity Solutions advises international law firms on cross-border legal market positioning. If the India corridor is a live question for your firm, we would be interested in a conversation. Lawfinity works with one firm per jurisdiction. Engagements begin with a single conversation about your firm’s current position and where the corridor question is live for you. Write to Prachi Shrivastava
