A group treasury centre helps multinational groups manage funds and lending between affiliates. In GIFT IFSC, a Global or Regional Corporate Treasury Centre (GRCTC) operates under the IFSCA regulatory framework, while Indian tax law may treat certain intra-group loans as deemed dividends. Amendments introduced in 2025 and 2026 changed the scope of this tax exclusion, making both regulatory compliance and the conditions for relief important when structuring treasury operations.

The Regulatory Half: A GRCTC is a Finance Company or Finance Unit

Treasury centres are not a separate licence category under the GIFT IFSC regulatory framework. Instead, Global/Regional Corporate Treasury Centres (GRCTCs) are recognised as a permitted core activity under regulation 5(1)(ii)(e) of the IFSCA (Finance Company) Regulations, 2021.

Two structural choices follow from the regulations:

• a Finance Company is separately incorporated (a subsidiary, joint venture or newly incorporated company under the Companies Act, 2013), does not accept public deposits and is not registered as a Banking Unit; while
• a Finance Unit is a branch of an entity incorporated in its home jurisdiction.

For Finance Units generally, the regulations require the applicant to be engaged in financial services and regulated in its home jurisdiction, with a no-objection certificate from the home regulator. A second proviso to regulation 3(3) disapplies that requirement for an entity setting up a GRCTC as a Finance Unit. This is a deliberate accommodation: a manufacturing or technology group’s treasury arm is not a regulated financial institution at home, and would otherwise be unable to qualify.

Capital is calibrated accordingly. Under the Schedule, a GRCTC must maintain the higher of USD 0.2 million or any amount required under the relevant framework, as against USD 3 million for other core activities. The Schedule also exempts a GRCTC from regulation 4, the prudential requirements including the 8% capital ratio, liquidity coverage ratio and 25% exposure ceiling, subject to having a Board-approved prudential policy and satisfying fit-and-proper criteria.

The Operating Framework for GIFT IFSC Treasury Centres

IFSCA’s framework circular of 4 April 2025, updated as on 9 June 2025, superseded the earlier 2021 framework. Its main features:

Registration conditions (clause 3). The applicant must have or undertake to set up adequate infrastructure in the IFSC; undertake to employ at least five qualified personnel based in the IFSC, including a Head of Treasury and a Compliance Officer, before commencing operations; demonstrate the owned-fund requirement; have a parent from a jurisdiction not identified in the FATF public statement as a “High Risk Jurisdiction subject to a call for action”; satisfy fit-and-proper requirements; and not have been refused authorisation by IFSCA in the preceding year. The June 2025 amendment allows the Chairperson to relax the five-personnel condition, on request, for up to one year from commencement of operations.

Legal form (clause 5). A company in the IFSC, or a branch of a company incorporated in India or outside India.

Owned fund (clause 6). USD 0.2 million at all times, which for a Finance Unit may be maintained at parent level.

Who may be served (clause 12). A GRCTC may undertake permissible activities for its group entities, the group entities of its parent, and branches of such parent or group entities. Those service recipients may be resident or non-resident under FEMA. Where a service recipient is a person resident in India, the framework expressly requires compliance with FEMA. The GRCTC must maintain an updated list of service recipients and provide it to IFSCA when called for, and service recipients must be registered under some law with a competent or statutory body in their home jurisdiction.

Permissible activities (clause 13). Raising capital by issuing equity shares; borrowing, including inter-company deposits; credit arrangements; transacting or investing in financial instruments issued in or outside the IFSC; OTC and exchange-traded derivatives; foreign exchange transactions in specified currencies; factoring and forfaiting; acting as a re-invoicing centre; liquidity management; maintaining relationships with financial counterparties; managing service recipients’ insurance and pension-related obligations; advisory services related to those activities and to financial and risk management, funding and capital markets; acting as a holding company; and any other notified activity with prior approval. A GRCTC undertaking factoring and forfaiting must additionally register under the IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024.

Commencement (clause 14). Operations must begin within six months of the certificate of registration. An extension of up to three months may be sought at least two months before the deadline, supported by a board resolution.

Governance (clause 15). Board-approved corporate governance, risk management and permissible-activity policies are mandatory, the last covering approval processes and delegation, financial limits, oversight or audit, and control mechanisms.

Currency rules come from the regulations themselves: operations in freely convertible foreign currency, an INR account permitted for administrative and statutory expenses, and a balance sheet maintained in US dollars.

The Tax Half: The Deemed-Dividend Carve-Out

Under Indian income-tax law, certain advances or loans to shareholders or to concerns in which a shareholder has a substantial interest may be treated as deemed dividends. For GIFT IFSC treasury centres, which rely on intra-group lending, this can create significant tax concerns. The Finance Acts of 2025 and 2026 introduced a conditional exclusion from the deemed-dividend provisions, subject to specific requirements relating to group entities, foreign listings and notified jurisdictions.

Parliament addressed this in two stages.

2025. The Finance Act, 2025 inserted an exclusion in section 2(22) of the Income-tax Act, 1961 for an advance or loan between two group entities where one of them is a Finance Company or Finance Unit, and the parent or principal entity of the group is listed on a stock exchange outside India, other than in territories the Board may specify.

2026. The Finance Act, 2026 substituted the corresponding sub-clause in section 2(40) of the Income-tax Act, 2025. As substituted, the exclusion covers an advance or loan between two group entities where:

• one of the group entities is a “Finance Company” or a “Finance Unit”;
• the other group entity to the transaction is located in a country or territory outside India; and
• the parent entity or principal entity of the group is listed on a stock exchange in a country or territory outside India,

with the added stipulation that, for the second and third conditions, the country or territory outside India “shall be specified by the Central Government, by notification”.

The amendment also fixes the vocabulary. “Group entity” takes the meaning given to “group entities” in regulation 2(1)(m) of the IFSCA (Payment Services) Regulations, 2024. “Parent entity” or “principal entity” means an entity of which the other group entities are subsidiaries and which either exercises or controls more than half the total voting power, alone or with subsidiaries, or controls the composition of the board of directors.

Two practical consequences follow.

First, the relief is structurally conditional. A group whose parent is unlisted, or listed only in India, does not satisfy the third condition, however genuine its treasury operations. The exclusion is drawn around listed multinational groups.

Second, the relief depends on a notification. As substituted, the provision requires the relevant countries or territories to be specified by the Central Government. As at 17 September 2026, no such notification was traced in the IFSCA notifications database or in publicly available Income Tax Department material. Until the position is confirmed, a group relying on the carve-out for the tax year 2026-27 should treat the scope of eligible jurisdictions as unresolved and document the basis on which it takes its position.

Reading the Two Halves Together

The regulatory framework is permissive about who may be served, including Indian group companies, subject to FEMA. The tax carve-out is narrower, keyed to listed foreign parents, foreign-located counterparty group entities and notified jurisdictions. A treasury structure that satisfies IFSCA’s requirements is therefore not automatically outside the deemed-dividend charge, and the two analyses should be run together before the first intra-group loan is made.

FAQs

1. What is a GRCTC in GIFT IFSC?

A Global or Regional Corporate Treasury Centre (GRCTC) manages intra-group financing, liquidity and treasury operations under the IFSCA regulatory framework.

2. What is the deemed-dividend exclusion for GRCTCs?

It provides conditional relief for qualifying intra-group loans under section 2(40) of the Income-tax Act, 2025, subject to the statutory requirements.

3. Can an Indian group qualify for the exclusion?

The exclusion requires the relevant group entity to be located outside India and the parent or principal entity to be listed on a foreign stock exchange, subject to the specified-jurisdiction requirement.

4. Is the deemed-dividend exclusion automatic?

No. Eligibility depends on the statutory conditions, including the Central Government’s notification of the relevant countries or territories.

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Transaction taxes on IFSC exchanges affect trading costs and liquidity because they apply to transactions rather than profits. In India, securities transaction tax (STT), commodities transaction tax (CTT) and stamp duty on securities transactions follow different rules for qualifying trades on International Financial Services Centre (IFSC) exchanges compared with domestic exchanges. Understanding these GIFT IFSC transaction tax exemptions requires examining the applicable statutory provisions, rates and conditions.

Securities Transaction Tax

STT is charged under Chapter VII of the Finance (No. 2) Act, 2004. Section 98 sets out the taxable securities transactions and the rates.

Two developments matter as at 17 September 2026.

Rates rose in 2026. The Finance Act, 2026, by section 159 (enacting clause 143 of the Finance Bill, 2026), amended the section 98 table (serial number 4) to increase the rate on the sale of an option in securities from 0.1% to 0.15% of the option premium, on the sale of an option where the option is exercised from 0.125% to 0.15% of the intrinsic price, and on the sale of futures in securities from 0.02% to 0.05% of the traded price. The Notes on Clauses record that these take effect from 1 April 2026.

Chapter VII does not apply to IFSC exchange transactions in foreign currency. Section 113A of the same Act provides that the provisions of Chapter VII shall not apply to taxable securities transactions entered into by any person on a recognised stock exchange located in an International Financial Services Centre, where the consideration for the transaction is paid or payable in foreign currency. The provision was introduced with effect from 1 June 2016.

Two conditions therefore govern the exclusion: the transaction must be on a recognised stock exchange located in an IFSC, and the consideration must be paid or payable in foreign currency. A trade that fails either condition is outside the exclusion.

Commodities Transaction Tax

Commodities transaction tax (CTT) is levied under Chapter VII of the Finance Act, 2013, on specified commodity derivatives transactions on a recognised association. Section 132A provides an exemption for qualifying transactions on a recognised association located in an International Financial Services Centre (IFSC), where the consideration is paid or payable in foreign currency. This exclusion took effect on 1 June 2016.

Like the securities transaction tax (STT) exclusion, this provision is conditional. Qualifying commodity derivatives transactions on an IFSC exchange are excluded from CTT, while transactions on a domestic exchange do not qualify for this specific exclusion.

Verification note: The Gazette text of sections 113A and 132A was not directly available during research. The provisions were checked against reproduced statutory text in published tax commentary, and the Government’s Arthapedia entry on IFSCs confirms that STT and CTT exemptions formed part of the 2016–17 Budget’s IFSC tax package. Readers relying on these provisions for a transaction should verify the current statutory text against the Gazette.

Stamp Duty on Securities Transactions

Stamp duty on securities transactions was centralised by amendments to the Indian Stamp Act, 1899. Section 9A, inserted by Act 7 of 2019 and brought into force on 1 July 2020, provides that:

• on a sale of securities through a stock exchange, stamp duty on each sale in the clearance list is collected by the stock exchange or an authorised clearing corporation from the buyer, on the market value at settlement;
• on a transfer of securities for consideration by a depository otherwise than through such a sale, duty is collected by the depository from the transferor; and
• on a creation or change in depository records pursuant to an issue of securities, duty on the allotment list is collected by the depository from the issuer.

Section 9A(2) charges these instruments at the rates in Schedule I and dispenses with physical stamping. It then carries a proviso, inserted by Act 12 of 2020 with effect from 1 April 2020:

“Provided that no such duty shall be chargeable in respect of the instruments of transaction in stock exchanges and depositories established in any International Financial Services Centre set up under section 18 of the Special Economic Zones Act, 2005.”

Three points follow.

The relief is instrument-specific. It applies to instruments of transaction in IFSC stock exchanges and depositories. It is not a general stamp-duty exemption for entities located in GIFT IFSC.

Collection machinery is displaced along with the charge. Because section 9A operates by making exchanges, clearing corporations and depositories the collecting agents, and because section 9A(3) bars State Governments from charging duty on associated documents for the transactions in section 9A(1), the proviso removes the levy at its point of collection.

Other instruments remain chargeable. Leases of office space, LLP agreements, security documents, powers of attorney and similar instruments executed in Gujarat continue to be governed by the Gujarat Stamp Act, 1958 and the applicable state schedule, unless a specific state exemption applies. Any state-level concession should be confirmed against the relevant Gujarat notification for the period concerned.

Transaction Tax Exemptions on IFSC Exchanges: Key Differences

The currency condition in the first two rows is worth emphasising, because it is easy to overlook in structuring. It attaches to the consideration for the transaction, not to the currency in which the underlying security is denominated or in which the investor’s accounts are maintained.

Equally, these levies are distinct from income tax. A transaction outside STT may still produce taxable capital gains, and the availability of an exemption under Schedule VI of the Income-tax Act, 2025 depends on entirely separate conditions (Article 7). The absence of a transaction tax says nothing about the income-tax treatment of the same trade.

Frequently Asked Questions

1. Are IFSC exchange trades exempt from Securities Transaction Tax (STT)?

Yes. Section 113A of the Finance (No. 2) Act, 2004 excludes qualifying transactions on recognised IFSC stock exchanges where consideration is paid or payable in foreign currency.

2. Is Commodities Transaction Tax (CTT) exempt in GIFT IFSC?

Section 132A of the Finance Act, 2013 provides a similar exclusion for qualifying commodity transactions on recognised associations located in an IFSC, subject to the foreign-currency condition.

3. Is stamp duty exempt on securities transactions in GIFT IFSC?

Yes. Section 9A(2) of the Indian Stamp Act, 1899 provides an exemption for specified transaction instruments involving stock exchanges and depositories established in an IFSC.

4. Do transaction tax exemptions apply to all transactions in GIFT IFSC?

No. STT and CTT exclusions are subject to specific statutory conditions. The stamp duty exemption covers specified transaction instruments, not every agreement or document executed in GIFT IFSC.

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For indirect tax, a GIFT IFSC unit is not a special species. It is an SEZ unit, and the GST treatment of GIFT IFSC units follows from that classification, read with two questions: whether a supply is for its authorised operations and whether a supply it makes qualifies as an export of services.

Neither question is answered by the unit’s IFSCA registration. Both are answered by the GST statutes and the scope of the unit’s SEZ approval.

The Starting Point: SEZ Supplies are Inter-State

Section 7(5) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) provides that supplies of goods or services “to or by a Special Economic Zone developer or a Special Economic Zone unit” are treated as supplies in the course of inter-State trade or commerce. The consequence is structural: IGST, not CGST and SGST, is the relevant levy on both sides of a transaction involving a GIFT IFSC unit.

This is distinct from the customs fiction in section 53(1) of the SEZ Act, 2005, which deems an SEZ to be a territory outside the customs territory of India “for the purposes of undertaking the authorised operations”. That fiction governs customs treatment; it does not take the SEZ outside the GST net.

Inbound Supplies: Zero-Rated, but only for Authorised Operations

Section 16(1) of the IGST Act defines “zero rated supply” as:

• the export of goods or services or both; or
• the supply of goods or services or both for authorised operations to an SEZ developer or unit.

The words “for authorised operations” were inserted by the Finance Act, 2021 and brought into force on 1 October 2023. Before that, the sub-clause referred simply to supplies to an SEZ developer or unit. The change narrowed the relief and made the scope of the recipient’s authorised operations directly relevant to its Indian suppliers’ tax position.

For an Indian supplier to a GIFT IFSC unit, two routes remain under section 16(3): supply under bond or letter of undertaking without paying integrated tax and claim a refund of unutilised input tax credit; or, for classes of persons or supplies notified under section 16(4), supply on payment of integrated tax and claim a refund of the tax paid.

Section 16(2) preserves input tax credit on zero-rated supplies even where the supply is otherwise exempt, subject to the blocked-credit provision in section 17(5) of the CGST Act. Section 16(5), inserted by section 153 of the Finance (No. 2) Act, 2024 with effect from 1 November 2024, denies refund of unutilised credit or of integrated tax where the goods are subjected to export duty.

A proviso to section 16(3) requires a supplier to deposit the refund, with interest, within thirty days of the expiry of the period allowed under the Foreign Exchange Management Act, 1999 for realisation of sale proceeds, where those proceeds are not realised.

Imported Services: A Specific Exemption

Where a GIFT IFSC unit procures services from outside India, the default position would be a reverse-charge liability. Notification No. 18/2017-Integrated Tax (Rate) dated 5 July 2017 exempts “services imported by a unit or a developer in the Special Economic Zone for authorised operations” from the whole of the integrated tax.

The exemption is again tethered to authorised operations. A unit that imports services which fall outside the operations authorised in its Letter of Approval cannot rely on it.

Outbound Supplies: When is a Service an Export?

Most GIFT IFSC units supply services to clients outside India. That supply is zero-rated as an export only if it satisfies the five conditions in section 2(6) of the IGST Act:

1. the supplier of service is located in India;
2. the recipient is located outside India;
3. the place of supply is outside India;
4. payment has been received in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI; and
5. the supplier and recipient are not merely establishments of a distinct person under Explanation 1 to section 8.

Two of these deserve particular attention in an IFSC context.

Condition (i) confirms that the unit is “located in India”. Despite the customs fiction and the FEMA non-resident deeming (Article 2), an IFSC unit supplying services is an Indian supplier for GST. Its supplies to offshore clients are exports; they are not outside the GST framework.

Condition (v) is the intra-group trap. A GIFT IFSC unit that is a branch or establishment of the same legal person as its overseas client, for example an offshore parent’s IFSC branch serving that parent, may fail this condition, because the two may be establishments of a distinct person. The distinction between a subsidiary and a branch, and between a client and a head office, therefore has a direct GST consequence for global in-house centres and back-office operations.

Intermediary services after the Finance Act, 2026. Condition (iii), that the place of supply be outside India, was for years fatal to intermediaries. Section 13(8)(b) of the IGST Act fixed the place of supply of intermediary services at the location of the supplier, so a broker, distributor or referral agent in India acting for a foreign principal could not export. Section 157 of the Finance Act, 2026 omitted clause (b) with effect from 30 March 2026, the date of assent. Place of supply for intermediary services now follows the default rule in section 13(2), the location of the recipient. An IFSC unit arranging or facilitating supplies for a principal outside India should therefore test such supplies afresh as exports of services, subject to all five conditions in section 2(6). Supplies made before 30 March 2026 remain governed by the omitted clause. Whether the omission affects pending disputes for earlier periods is a separate question that should be examined on the facts.

On condition (iv), CBIC Circular No. 202/14/2023-GST dated 27 October 2023 clarified that receipt of payment in Indian rupees through Special Rupee Vostro Accounts, as permitted by the RBI’s A.P. (DIR Series) Circular No. 10 of 11 July 2022, satisfies the requirement.

Supplies into the Domestic Tariff Area

For GIFT IFSC units contemplating domestic-facing revenue lines, the GST treatment of supplies to the domestic tariff area interacts with two other constraints: the IFSCA regulations governing whether the activity may be carried on with Indian residents at all, and the income-tax requirement that the section 147 deduction attaches to approved business activities (Article 5).

Registration and Documentation

A GIFT IFSC unit requires its own GST registration. IFSCA’s published workflow for setting up a unit routes the GST registration application through the SWIT portal alongside the other post-approval steps (Article 3).

Three documentation habits reduce disputes:

• Map the authorised operations. The list of services and goods approved for the unit’s authorised operations determines the zero-rating of inbound supplies and the import-services exemption. Where a new activity is added, the approval should be updated before the procurement, not afterwards.
• Preserve the export evidence. Foreign exchange realisation, the location of the recipient and the place of supply analysis should be documented contemporaneously for each service line.
• Test the distinct-person question at contract stage. Whether the counterparty is a separate legal person, and whether the arrangement is with a head office or with a genuinely separate entity, decides condition (v) and cannot be fixed by invoicing practice afterwards.

The Position as at 17 September 2026

The statutory framework described above is in force. The narrowing of section 16(1)(b) to authorised operations has applied since 1 October 2023, and section 16(5) since 1 November 2024. Specific questions, such as the GST treatment of particular financial services or the place of supply for a given product, turn on the CGST and IGST place-of-supply provisions and on the relevant rate and exemption notifications, which should be checked for the period concerned.

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Moving a fund is not like moving an office. The relocation of offshore funds to GIFT City can involve two potential capital gains tax events: the fund’s transfer of assets to a new vehicle in GIFT IFSC and each investor’s exchange of interests in the original fund for interests in the new one. The Income-tax Act, 2025 provides tax neutrality for qualifying relocations, subject to specific statutory conditions and a prescribed deadline.

Section 70 of the Income-tax Act, 2025 identifies transactions that are not regarded as transfers for capital gains purposes. Two clauses specifically address the tax treatment of fund relocation:

• Section 70(1)(t): The transfer of a capital asset by the original fund to the resultant fund as part of a relocation.
• Section 70(1)(u): The transfer by a shareholder, unit holder or interest holder of shares, units or interests in the original fund in exchange for shares, units or interests in the resultant fund.

Together, these provisions cover both the fund-level transfer of assets and the investor-level exchange of interests. If either limb fails to qualify, the intended tax neutrality may not apply to that part of the transaction, with different consequences for the fund and its investors.

The Three Defined Terms that Do the Work

Section 70(2) (Table, Sl. No. 5) defines the key terms that determine whether an offshore fund relocation to GIFT IFSC qualifies for tax neutrality.

“Original fund” means, in substance, a fund established, incorporated or registered outside India that collects funds from members for investment on their behalf and satisfies four conditions: it is not a person resident in India; it is a resident of a country or specified territory with which India has an agreement under section 159(1) or (2), or is established in a country or territory notified by the Central Government; the fund and its activities are subject to applicable investor-protection regulation in that country; and it fulfils such other conditions as may be prescribed. The definition also covers an investment vehicle wholly owned and controlled directly or indirectly by the Abu Dhabi Investment Authority or the Government of Abu Dhabi, and any fund notified by the Central Government subject to specified conditions.

“Relocation” means the transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund on or before 31 March 2030, where the consideration is discharged in the form of shares, units or interests in the resulting fund issued either to the holders of the original fund in the same proportion as their existing holdings, or to the original fund itself in the same proportion where no issue is made to holders.

“Resultant fund” means a fund established or incorporated in India as a trust, company or LLP, located in an IFSC, which has been granted either a certificate of registration as a Category I, II or III Alternative Investment Fund, or a certificate as a retail scheme or Exchange Traded Fund under Schedule VI (Note 1) satisfying the conditions in Schedule VI, and which is regulated under the SEBI (Alternative Investment Funds) Regulations, 2012 or under the IFSCA Fund Management Regulations.

Three practical points follow. First, the deadline is a hard date: a relocation completed after 31 March 2030 is outside the definition. Second, proportionality is essential; the consideration must mirror existing holdings. Third, the resultant fund must already hold, or obtain, the correct IFSCA authorisation. The regulatory step is a condition of the tax outcome, not a parallel workstream.

What Follows from Neutrality

Because the relocation transfers are not regarded as transfers, three further consequences arise under the Act.

• Cost carries over. For assets and interests acquired through a transfer referred to in section 70(1)(t) or (u), the cost of acquisition is the cost to the previous owner, computed under the Act’s special provisions for such transactions. Neutrality defers the gain; it does not erase it.
• No charge as a receipt without consideration. The Act’s charge on receipt of property without, or for inadequate, consideration expressly excludes receipts by way of a transaction not regarded as a transfer under section 70(1)(t) and (u). Without this, the investor’s receipt of new units could have been taxed as a gratuitous receipt.
• Losses survive a change in shareholding. The Act’s restriction on carry-forward of losses where there is a change in shareholding does not apply to a company to the extent the change takes place on account of relocation referred to in section 70(2) (Table: Sl. No. 5.C).

After Relocation: The Built-in Indian Gains

Neutrality at the point of relocation would be of limited use if the resultant fund then paid Indian tax on gains that the original fund would not have paid. Schedule VI (Table, Sl. No. 10) addresses this. Capital gains on the transfer of shares of a company resident in India are excluded from total income of a non-resident or a specified fund, where:

• the gains arise on a transfer by the resultant fund or a specified fund;
• the shares were transferred from the original fund, or its wholly owned special purpose vehicle, to the resultant fund in relocation, and the gains on those shares would not have been chargeable to tax had the relocation not taken place; and
• the exclusion is limited to the extent attributable to units held by non-residents that are not permanent establishments of a non-resident in India, computed in the prescribed manner.

The second condition is the analytical heart of the provision. It preserves the pre-relocation position rather than improving it. Where the original fund would have been taxable in India on a gain, for example because no treaty relief was available, the resultant fund does not acquire an exemption by relocating. Testing this counterfactual, asset by asset, is the central diligence exercise in a relocation.

Sequencing the Transaction

A relocation of an offshore fund to GIFT IFSC generally involves the following steps:

1. Confirm the original fund qualifies, including the treaty or notified-jurisdiction condition and investor-protection regulation in its home jurisdiction.
2. Establish and authorise the resultant fund in GIFT IFSC under the IFSCA Fund Management Regulations, with the correct category of registration or scheme certificate (see Articles 18 and 19).
3. Structure the consideration so that shares, units or interests are issued in the same proportion, satisfying the definition of relocation.
4. Run the counterfactual analysis on the Indian-share portfolio for Schedule VI (Sl. No. 10).
5. Complete the transfer on or before 31 March 2030.
6. Maintain the non-resident unit-holding position, since both Schedule VI and section 210 apply attribution rules based on units held by non-residents.

Points of Continuing Uncertainty

Several conditions in these provisions are “as may be prescribed”, including conditions for the original fund and the manner of computing attributable income. Claims should be tested against the rules in force for the relevant tax year. Under the 1961 Act, the corresponding provision was section 47(viiab) and related clauses, and notifications issued under that Act, for example the notification dated 12 September 2023 concerning investment trusts, schemes and ETFs, continue to be relevant so far as they are consistent with the 2025 Act. As at 17 September 2026, no judicial decision interpreting the relocation provisions of the 2025 Act was traced.

Finally, tax neutrality does not address the non-tax dimensions of a relocation: investor consents, the treatment of existing contracts, the regulatory position of the original fund in its home jurisdiction, and the foreign-exchange and reporting consequences of the transfer. Those sit outside the Income-tax Act and must be run in parallel.

FAQs

1. What is tax-neutral relocation of an offshore fund to GIFT IFSC?

It allows qualifying transfers of fund assets and investor interests without treating them as transfers for capital gains purposes under section 70.

2. What is the deadline for tax-neutral fund relocation?

The relocation must be completed on or before 31 March 2030.

3. Which funds qualify for relocation tax neutrality?

The original fund must meet the statutory eligibility conditions, and the resultant fund must satisfy the prescribed IFSC location and regulatory authorisation requirements.

4. Does relocation eliminate future capital gains tax?

No. Tax neutrality generally defers capital gains at relocation. Subsequent gains remain subject to applicable tax rules, although Schedule VI provides a limited exclusion for qualifying Indian-share gains.

5. Why is proportional consideration important?

The shares, units or interests issued as consideration must satisfy the statutory proportionality requirements for the transaction to qualify as a relocation.

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Most published summaries of GIFT IFSC tax benefits describe exemptions that belong to investors rather than to the IFSC unit itself. Under the Income-tax Act, 2025, those investor-side exemptions have been consolidated into a single place: Schedule VI, which operates through section 11 and is titled “Income not to be included in total income of certain eligible persons in International Financial Services Centre or having income therefrom”.

Schedule VI is built as a table. Column B states the income, column C the eligible person, and column D the conditions. Nothing is exempt in the abstract: each row must be matched to a person and to its conditions.

Categories of GIFT IFSC Tax Exemptions

Schedule VI sets out twelve GIFT IFSC tax exemptions across four categories.

Rows 1 to 4 — specified funds. These exempt, in the hands of a “specified fund”:

1. income from the transfer of a capital asset referred to in section 70(1)(r) where the transfer takes place on a recognised stock exchange located in an IFSC;
2. income from the transfer of securities, other than shares in a company resident in India;
3. income from securities issued by a non-resident, where the securities are not issued by a permanent establishment of a non-resident in India; and
4. business income from a securitisation trust.

The conditions are cumulative and structural. Consideration must be paid or payable in convertible foreign exchange (row 1). More importantly, the exemption applies only “to the extent” the income is attributable to units held by non-residents, not being the permanent establishment of a non-resident in India, or to the investment division of an offshore banking unit. The computation is to be made in the prescribed manner.

This attribution rule is the heart of the regime. A fund with resident investors is not disqualified outright, but the exemption tracks the non-resident share of its units.

Rows 5 to 7 — non-resident counterparties and clients. These cover:

• income from non-deliverable forward contracts, offshore derivative instruments or over-the-counter derivatives, and distributions on them, where the contract is entered into with an offshore banking unit of an IFSC or with a foreign portfolio investor that is an IFSC unit, subject to prescribed conditions (row 5);
• royalty or interest on the lease of an aircraft or a ship, where paid by an IFSC unit that commenced operations on or before 31 March 2030 (row 6); and
• income from a portfolio of securities, financial products or funds managed or administered by a portfolio manager on behalf of the non-resident, received in an account maintained with an Offshore Banking Unit in an IFSC, to the extent the income accrues or arises outside India and is not deemed to accrue or arise in India (row 7).

Row 7 is narrower than it first appears. It is an exemption for offshore-sourced income routed through an IFSC account; it does not convert Indian-source income into exempt income.

Rows 8 and 11 — aircraft and ship leasing. Row 8 exempts capital gains on the transfer of equity shares of a domestic company that is an IFSC unit primarily engaged in aircraft or ship leasing, for a non-resident or another IFSC unit, where the company commenced operations on or before 31 March 2030 and the gains fall within the prescribed ten-year windows. Row 11 exempts dividends from such a leasing unit in the hands of an IFSC unit. “Aircraft” and “ship” are defined in Note 3 to include engines and parts.

Rows 9, 10 and 12 — unit holders, relocation and borrowing. Row 9 exempts income accruing to a unit holder of a specified fund, or arising on transfer of units in it. Row 10 exempts capital gains of a non-resident or specified fund on the transfer of shares of an Indian company that were transferred to the resultant fund on relocation, where those gains would not have been taxable had the relocation not occurred (see Article 8). Row 12 exempts interest payable by an IFSC unit on moneys borrowed by it on or after 1 September 2019, in the hands of a non-resident recipient.

Row 12 is commercially important: it is the basis on which offshore lenders are able to lend to IFSC units without an Indian withholding cost, provided the borrowing date condition is met.

The Definition that Controls Rows 1 to 4 and 9

“Specified fund” is defined in Note 1(g). It means, in substance:

• a fund established or incorporated in India as a trust, company, LLP or body corporate, located in an IFSC, which has either a certificate of registration as a Category III Alternative Investment Fund (under the SEBI AIF Regulations, 2012 or the IFSCA Fund Management Regulations) or a certificate as a retail scheme or Exchange Traded Fund satisfying the conditions for such schemes under the IFSCA Fund Management Regulations; and whose units are held by non-residents, subject to carve-outs; or
• the investment division of an offshore banking unit registered as a Category-I foreign portfolio investor, which has commenced operations on or before the specified date and maintains separate accounts as prescribed.

The Finance Act, 2026 amended Note 1(g) in two respects. It restructured the unit-holding condition, so that all units other than those held by a sponsor or manager must be held by non-residents, with an exception where a non-resident unit holder subsequently becomes resident and the units held by such resident holders do not exceed 5% of total units issued, subject to prescribed conditions. It also substituted “2030” for “2025” as the commencement deadline for the investment division of an offshore banking unit, extending the window by five years.

For funds, this means the investor register is a tax document. A change in an investor’s residential status can affect the fund’s own characterisation, and the 5% tolerance is the margin within which that risk is managed.

What is not Exempt?

Schedule VI does not exempt everything a specified fund earns. Income outside its exemptions remains taxable. Section 210 prescribes special tax rates for specified funds and foreign institutional investors, including 10% for specified funds and 20% for foreign institutional investors on income from securities, 30% or 20% on short-term capital gains depending on the applicable provision, and 12.5% on long-term capital gains.

Section 210(2) applies the same attribution rule as Schedule VI: for a specified fund, the provision applies only to income attributable to units held by non-residents who are not permanent establishments in India.

Nor does Schedule VI exempt an IFSC unit’s own business income. That is governed separately by the deduction under section 147 (Article 5).

Practical Consequences

• Identify the row before claiming the benefit. Each row has its own eligible person and conditions. “It is a GIFT City fund” is not a tax analysis.
• Watch the 31 March 2030 dates. Rows 6 and 8, and the definition of the investment division of an offshore banking unit, are keyed to commencement of operations by that date. So is “relocation” under section 70(2).
• Model the attribution rule. For specified funds, the exemption follows the non-resident share of units, computed in the prescribed manner. Fund documentation, transfer restrictions and investor onboarding should reflect this.
• Track residential status changes. After the 2026 amendment, the consequence of a non-resident investor becoming resident is governed by an express carve-out with a 5% ceiling.
• Check the borrowing date. Row 12 applies to moneys borrowed on or after 1 September 2019.

Where a condition is “as may be prescribed”, the operative detail sits in the rules. Claims should be tested against the rules in force for the relevant tax year rather than against the Schedule alone.

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A GIFT IFSC tax deduction under Section 147 of the Income-tax Act, 2025 does not eliminate every tax liability. Even if an eligible GIFT City IFSC unit claims a 100% deduction, it may still face minimum alternate tax (MAT) or alternate minimum tax (AMT), dividend taxation for shareholders, and tax deducted at source (TDS) on certain payments. Understanding these GIFT IFSC tax implications is essential to assess the actual tax liability, withholding relief and cash tax position of an IFSC business.

GIFT IFSC Tax Implications: Minimum Tax and Dividends

Section 206 of the Income-tax Act, 2025 houses both minimum alternate tax (MAT) for companies and alternate minimum tax (AMT) for other persons.

For companies, section 206(1) applies where the tax payable on total income is less than the minimum alternate tax. Book profit is then deemed to be total income. The rate distinguishes IFSC units:

For persons other than companies, section 206(2) applies AMT on “adjusted total income”, which is total income increased by the deductions claimed. The rates are 9% for an assessee that is a unit located in an IFSC deriving income solely in convertible foreign exchange, 15% for a co-operative society, and 18.5% otherwise.

Three points deserve emphasis.

The condition is strict. The 9% rate is available only where income is derived solely in convertible foreign exchange. A unit with a rupee income stream should examine whether the concessional rate is available to it at all, because the consequence is not a proportionate adjustment but the ordinary rate.

AMT bites on the deduction itself. Because adjusted total income adds back the deductions claimed, an IFSC unit organised as an LLP and claiming section 147 will typically find AMT engaged. This is by design: the minimum tax regime exists precisely to place a floor under deduction-driven profiles.

MAT credit has changed. The Finance Act, 2026 substituted section 206(3). Credit carried forward under section 115JAA of the 1961 Act as on 31 March 2026 may be set off, but the set-off is capped at 25% of the tax payable on total income for the year, with the balance carried forward, and no carry-forward or set-off beyond the fifteenth tax year following the year in which the credit first became allowable. Groups modelling the cash tax cost of an IFSC unit against accumulated credits should re-run those models on the amended provision. Two further conditions are decisive and should not be overlooked. First, set-off of that brought-forward credit is available only where the company is taxed under the new (concessional) regime; a company that remains in the old regime pays MAT without the benefit of set-off. Second, from tax year 2026-27 MAT operates as a final tax, so no fresh credit arises on MAT paid from 1 April 2026. A foreign company is subject to its own transitional rule on the use of credit, which should be checked separately.

Dividends: A 10% Rate for Non-Resident Shareholders

Dividends are taxable in the shareholder’s hands. For non-residents and foreign companies, section 207(1) sets special rates. Its Table distinguishes:

• dividends generally: 20%; and
• dividends received from a unit in an International Financial Services Centre: 10%.

This is a rate applicable to the shareholder, not a relief for the unit, and it operates subject to the general framework, including the applicable surcharge and cess and any more favourable treaty rate where the recipient is eligible. For an Indian-resident shareholder of an IFSC unit, the ordinary dividend taxation rules apply.

For non-resident shareholders, the analysis therefore has three steps: the statutory rate under section 207, the treaty rate (if any) and the conditions for claiming it, and the withholding mechanics at the time of payment.

Withholding on Payments to an IFSC unit

The most frequent practical irritation for an IFSC unit is that its Indian counterparties withhold tax on payments to it, even though its income may be fully deductible. The Central Government has addressed this by notification rather than by a blanket exemption.

Two notifications matter most. Both were issued under section 80LA(1A) and (2) of the 1961 Act, and both operate by notifying that no deduction of tax shall be made in respect of specified payments to specified IFSC units.

• Notification dated 7 March 2024 covers a long list: for example, interest income on external commercial borrowings or loans, professional fees, referral fees, brokerage and commission on factoring and forfaiting for a Banking Unit; insurance commission for an IFSC insurance intermediary office; interest and dividend income and factoring commission for a Finance Company or Finance Unit; professional fees for a Fund Management Entity; dividends for a broker-dealer; advisory fees for an investment adviser; distribution and commission fees for a registered distributor; and fees for custodians, credit rating agencies, investment bankers, debenture trustees, international trade finance service providers and FinTech entities.
• Notification dated 20 June 2025 extends the approach to further categories and receipts, including professional, consulting or advisory fees of a book-keeping, accounting, taxation and financial crime compliance services provider; payments by recognised stock exchanges and commission incentives for broker-dealers; interest on lease and freight or hire charges for a finance company; portfolio management, investment advisory, management and performance fees for a Fund Management Entity; and fees, interest, data-centre rent and penalties levied by recognised clearing corporations, depositories and stock exchanges.

The relief is conditional and mechanical:

1. the payee IFSC unit furnishes a statement-cum-declaration in Form No. 1 to the payer, identifying the years for which it opts to claim the deduction;
2. the payer stops deducting tax only after receiving that form, and must still report the payments in its TDS statement under section 200(3) of the 1961 Act read with rule 31A;
3. the relief is available only for the years declared in Form No. 1. For any other year, the payer must deduct; and
4. the relief extends only to income of the unit from the business for which it was approved to be set up in the IFSC.

Other measures in the same family, traceable in IFSCA’s notifications database, include relaxation from furnishing Form 15C for remittances made by IFSC units (16 October 2023), exemption from obtaining PAN for non-residents opening a bank account with an IFSC Banking Unit (10 October 2023), and non-applicability of sections 194-O and 206C(1H) in specified cases (29 September 2020).

A Live Transitional Question

These notifications were issued under the 1961 Act, which was repealed with effect from 1 April 2026. Section 536(2)(j) of the Income-tax Act, 2025 saves any notification issued under the repealed Act “so far as it is not inconsistent with the corresponding provisions” of the new Act, and deems it to be issued under the corresponding provision.

Two consequences follow. First, the withholding reliefs continue to operate. Second, their text is framed around the ten consecutive assessment years for which a payee opts to claim under section 80LA. Since the Finance Act, 2026 extended the deduction period under section 147 of the 2025 Act to twenty years, the correspondence between the declared years in Form No. 1 and the extended entitlement is a question of how the saving applies. As at 17 September 2026, no replacement notification framed by reference to section 147 of the 2025 Act was traced. Units relying on these reliefs for years beyond the original ten-year window should treat the point as unresolved and document their position.

A Short Compliance Checklist

• Confirm whether income is derived solely in convertible foreign exchange before assuming the 9% minimum-tax rate.
• For LLP or trust structures, model AMT on adjusted total income, not on book profit.
• Re-check MAT credit assumptions against the substituted section 206(3).
• Issue Form No. 1 to every Indian payer, and re-issue as required for each relevant year. The relief does not operate retrospectively for payments made before the payer receives it.
• For non-resident shareholders, apply section 207 and the treaty analysis separately from the unit’s own position.

Frequently Asked Questions

1. What is the minimum tax rate for a GIFT IFSC unit?

Eligible IFSC units may qualify for a 9% MAT or AMT rate, subject to the statutory conditions, including deriving income solely in convertible foreign exchange.

2. Are GIFT IFSC units exempt from minimum tax?

No. The deduction under section 147 does not automatically eliminate MAT or AMT obligations.

3. What is the dividend tax rate for non-resident shareholders of an IFSC unit?

Section 207 provides a 10% rate for dividends received from an IFSC unit, subject to applicable surcharge, cess and eligible treaty relief.

4. Can an IFSC unit receive payments without TDS?

Yes, for specified payments covered by applicable notifications, provided the prescribed conditions, including submission of Form No. 1, are satisfied.

5. Do the existing IFSC withholding tax notifications remain valid after April 2026?

Section 536 preserves earlier notifications where they are consistent with the corresponding provisions of the Income-tax Act, 2025. The application of the existing ten-year wording to the extended twenty-year deduction period remains an issue requiring careful assessment.

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The phrase “GIFT City tax holiday” conceals three legal questions that decide whether anything is actually exempt: which entity qualifies, which income qualifies, and for how long. All three moved during 2025 and 2026. The Income-tax Act, 1961 was repealed and replaced by the Income-tax Act, 2025 with effect from 1 April 2026, so the familiar section 80LA is no longer the operative provision. The Finance Act, 2026 then doubled the period of the deduction and changed the rate that applies afterwards.

This article states the position as it stands on 17 September 2026.

Where the Provision Now Sits?

Section 147 of the Income-tax Act, 2025 is the successor to section 80LA of the 1961 Act. It is headed “Deductions for income of Offshore Banking Units and Units of International Financial Services Centre”.

The 1961 Act stands repealed by section 536 of the 2025 Act, but the repeal is subject to detailed savings. Proceedings for tax years beginning before 1 April 2026 continue under the 1961 Act, and elections or options exercised under the old Act are treated as exercised under the corresponding provision of the new one. A unit that had already begun claiming under section 80LA therefore does not start afresh; it continues under section 147.

Who Qualifies for the GIFT City Tax Holiday?

To qualify for the GIFT City tax holiday, section 147(1) identifies two categories of assessee:

• a scheduled bank, or a bank incorporated under the laws of a country outside India, having an Offshore Banking Unit in a Special Economic Zone; and
• a unit of an International Financial Services Centre.

“Unit” takes its meaning from section 2(zc) of the SEZ Act, 2005.

Which Income Qualifies?

The GIFT City tax holiday under section 147(1) allows a 100% deduction for specified income under section 147(3) of the Income-tax Act, 2025, including income from:

• an Offshore Banking Unit located in an SEZ;
• the business activities referred to in section 6(1) of the Banking Regulation Act, 1949 with undertakings in an SEZ, or with SEZ developers;
• the approved business activities of any IFSC unit set up in an SEZ; and
• the transfer of an asset being an aircraft or a ship leased by such a unit, if the unit commenced business operations by 31 March 2030.

The words “approved business activities” do significant work. The deduction attaches to income from the activities the unit is approved to carry on, not to every receipt of the entity. Income outside that perimeter is taxed in the ordinary way. Since the characterisation is fact-specific, the scope of a unit’s Letter of Approval and its IFSCA registration are tax documents as much as regulatory ones.

For How Long: the 2026 Change

Before the Finance Act, 2026, section 147(2) mirrored section 80LA of the 1961 Act: ten consecutive tax years for an Offshore Banking Unit, and ten consecutive tax years out of fifteen, at the assessee’s option, for an IFSC unit.

The Finance Act, 2026 (No. 4 of 2026, assented to on 30 March 2026), by section 47 (enacting clause 38 of the Finance Bill, 2026), substituted section 147(2) so that the deduction is allowed:

• for twenty consecutive tax years beginning from the relevant tax year, for an entity under section 147(1)(a) (the Offshore Banking Unit category); and
• for twenty consecutive tax years out of twenty-five years beginning from the relevant tax year, at the assessee’s option, for a unit of an IFSC.

The substituted provision opens with the words “Irrespective of anything contained in section 80LA of the Income-tax Act, 1961”, which preserves the extension for units whose entitlement originated under the old law. The Notes on Clauses record the intention to extend the period “for twenty consecutive years from ten years and twenty consecutive years out of twenty-five years respectively”, and state that the amendments take effect from 1 April 2026 and apply from tax year 2026-27.

The “relevant tax year” from which the window runs is defined in section 147(6)(a): broadly, the tax year in which permission under section 23(1)(a) of the Banking Regulation Act, 1949, or permission or registration under the SEBI Act, 1992 or the IFSCA Act, 2019, was obtained.

A New Anti-Splitting Condition

The same provision of the Finance Act also substituted section 147(5). For any Offshore Banking Unit or other unit referred to in section 147(1) commencing operations on or after 1 April 2026, the deduction is available only if the unit “is not formed by splitting up or reconstruction or reorganisation or transfer of a business already in existence in India”.

This is a significant structural condition for Indian groups. A unit created by moving an existing Indian business into the IFSC risks losing the deduction altogether. The condition echoes similar language elsewhere in Indian tax and regulatory practice, including the conditions attached to the 2024 notification of book-keeping, accounting, taxation and financial crime compliance services as financial services. As at the cut-off date, there is no judicial interpretation of the new section 147(5), and its application to reorganisations that involve new business lines rather than transferred ones is untested.

What Happens after the Twenty Years

The Finance Act, 2026 did not leave the post-deduction position to the general rates. The Act, by section 60 (enacting clause 51 of the Bill), substituted sections 217 and 218 of the 2025 Act. The new section 218 provides that where an assessee’s total income includes income of the nature referred to in section 147(3), the tax payable is computed as:

The practical effect is a concessional 15% rate for qualifying IFSC and Offshore Banking Unit business income outside the deduction window, in place of the rate that would otherwise apply to the assessee. This is relevant to long-horizon planning: the choice of which twenty of the twenty-five years to claim now determines which years fall to the 15% rate rather than to the ordinary rate.

Compliance Conditions that are Easy to Miss

Section 147(4) makes the deduction conditional on filing, with the return of income:

• a report from an accountant, in the prescribed form, certifying the correctness of the claim; and
• a copy of the permission under section 23(1)(a) of the Banking Regulation Act, 1949, or the permission or registration under the IFSCA Act, 2019.

These are substantive conditions of the deduction, not formalities.

The Minimum Tax Floor Still Applies

Section 147 reduces taxable income; it does not switch off the minimum tax regime. Under section 206(1)(b)(i) of the 2025 Act, a company that is a unit located in an IFSC and derives its income solely in convertible foreign exchange pays minimum alternate tax on book profit at 9%. The corresponding alternate minimum tax rate for non-corporate IFSC units, under section 206(2), is also 9%. The Finance Act, 2026 reduced the general MAT rate for other companies from 15% to 14% but left the 9% IFSC rate untouched. Article 6 examines this regime, and the dividend and withholding position, in detail.

What This Means in Practice

• The correct citation for the IFSC deduction from tax year 2026-27 is section 147 of the Income-tax Act, 2025, not section 80LA. Documents, board notes and offer materials referring only to section 80LA are out of date for current years, though the 1961 Act remains relevant to earlier years and pending proceedings.
• The extension to twenty years applies from tax year 2026-27 and, by the opening words of section 147(2), also benefits units whose claim began under section 80LA.
• Units commencing operations on or after 1 April 2026 must be able to demonstrate that they are not a reorganised version of an existing Indian business.
• The deduction is confined to income from approved business activities, and the surrounding compliance conditions in section 147(4) are strict.

Frequently Asked Questions

1. What is the GIFT City tax holiday under section 147?

Section 147 of the Income-tax Act, 2025 provides a 100% deduction for eligible income of qualifying IFSC units and Offshore Banking Units, subject to statutory conditions.

2. How long is the GIFT City tax holiday?

Eligible Offshore Banking Units can claim the deduction for 20 consecutive tax years. IFSC units can claim it for 20 consecutive tax years out of a 25-year period, at their option.

3. Which income qualifies for the deduction?

The deduction covers specified income from approved business activities of eligible IFSC units and other qualifying income under section 147(3).

4. Does the tax holiday apply to existing IFSC units?

Yes. The 2026 amendment preserves the extended deduction period for eligible units whose entitlement originated under section 80LA of the Income-tax Act, 1961.

5. What tax rate applies after the deduction period?

Qualifying income under section 147(3) is subject to a concessional 15% tax rate under section 218, subject to the applicable provisions.

6. What are the compliance requirements for claiming the deduction?

Section 147(4) requires an accountant’s report certifying the claim and a copy of the relevant regulatory permission or registration to be furnished with the return of income.

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When an entity in GIFT IFSC receives a show-cause notice from the International Financial Services Centres Authority (IFSCA), one of the first questions is which statute governs the proceedings. The IFSCA Act, 2019 does not set out a separate list of offences or penalties. Instead, IFSCA enforcement powers rely on relevant provisions of the laws listed in the Act’s First Schedule. Identifying the applicable provision helps determine the penalty, the factors considered during adjudication and where an appeal can be filed.

The Borrowed Machinery

Section 13(4) of the IFSCA Act provides that the provisions of the statutes listed in the First Schedule relating to inspection, investigation, prosecution, settlement, compounding, adjudication of offences or penalties, the determination and recovery of fines and penalties, and “filing of appeals arising therefrom”, apply mutatis mutandis under the IFSCA Act.

IFSCA’s own description of its enforcement function states that it draws its investigation, inspection and examination powers from sections 13(1) and 13(2) of the IFSCA Act read with the Acts in the Schedule, and that its enforcement actions may comprise directions, warnings, monetary penalties, suspension or cancellation of registration, and prosecution.

The practical structure is therefore three-layered:

1. the conduct obligation in an IFSCA regulation (for example, the Fund Management Regulations or the Capital Market Intermediaries Regulations);
2. the penal provision in the relevant parent statute (for example, the SEBI Act or the Insurance Act); and
3. the procedure, drawn from the same parent statute through section 13(4), supplemented by IFSCA’s regulations.

How this Looks in an Actual Order?

IFSCA’s order of 31 July 2026 in the matter of Rising Omega Advisors Private Limited illustrates the mechanics. The proceedings arose from alleged breaches of the Fund Management Regulations, including regulation 74(2) (availability of the disclosure document), regulation 78(1) and 78(2) (managing money in accordance with the agreement, and consent for derivative exposure), regulation 80 (conditions for advisory services) and regulation 120(1).

Several features of the order repay attention.

• The adjudicating forum. The matter was decided by a three-member “Quasi-Judicial Authority for Enforcement”, after a show-cause notice and a personal hearing.
• The source of power. The order was passed under sections 12 and 13(4) of the IFSCA Act read with sections 11B(1) and 11B(2) of the SEBI Act, 1992 (read with sections 15A, 15B and 15EA of that Act), and read with the relevant regulation of the Fund Management Regulations.
• Transitional layering. Because the conduct straddled the replacement of the 2022 Fund Management Regulations by the 2025 Regulations, the order identified corresponding provisions under both sets, read with the savings provision in the 2025 Regulations. Entities under investigation for historical conduct should expect this pairing.
• Quantum. Penalties of ₹1,00,000 were imposed under each of sections 15A, 15B and 15EA of the SEBI Act, a total of ₹3,00,000, alongside directions to remedy the breaches within 45 days.
• Statutory factors. The order applied section 15J of the SEBI Act (disproportionate gain, loss to investors, repetitive nature of the default) and noted that, following the Supreme Court’s decision in Adjudicating Officer, SEBI v. Bhavesh Pabari (2019) 5 SCC 90, factors beyond those listed in section 15J may also be considered.
• Currency and interest. Consistent with section 13(5) of the IFSCA Act, the penalty was to be deposited in the foreign-currency equivalent at the RBI rate on the date of the order. Failure to pay within 45 days attracted simple interest at 12% per annum.
• Appeal. The order recorded that an aggrieved noticee may appeal to the Securities Appellate Tribunal (SAT) having jurisdiction, under section 15T of the SEBI Act read with section 13(4) of the IFSCA Act.

The Types of Action IFSCA Can Take

IFSCA’s published enforcement actions between January and September 2026 show the full range in use: advisories; warnings; directions, including interim and confirmatory directions; monetary penalties with directions; and cancellation of registration.

Two categories deserve particular note.

Interim and confirmatory orders. Where IFSCA acts urgently, it may issue an interim direction and later confirm it after hearing the entity. The sequence in one 2026 matter, an interim order in July followed by a confirmatory order in August, follows the familiar pattern of securities regulation, where an ex parte interim direction is followed by a post-decisional hearing.

Cancellation of registration. This is the most severe non-criminal outcome. It removes the legal basis for the activity and, because an IFSC unit’s Letter of Approval is tied to its authorised operations, it has consequences under the SEZ framework as well (see Article 49 on exit).

Where to Appeal an IFSCA Order?

Because the appeal right is borrowed, there is no single appellate forum for all IFSCA orders. The route depends on the parent statute under which the order was made.

Three practical consequences follow.

First, the limitation period is short, and it runs from receipt of the order. Second, the identification of the parent provision in the order itself is significant: it tells the entity where to appeal. Third, where the parent statute provides no statutory appeal, the scope of review is different in kind. Writ jurisdiction examines legality, jurisdiction and fairness rather than re-deciding the merits.

As of 17 September 2026, the IFSCA Act itself does not establish a dedicated appellate tribunal for IFSC matters, and the appellate position therefore depends on this borrowing exercise. Where an order does not clearly identify the parent provision, the appellate route may itself become contestable. That is an area in which the legal position is not settled by any reported authority known as at the cut-off date.

Before Enforcement: Two Procedural Routes Worth Knowing

• Complaint handling. IFSCA issued a circular on complaint handling and grievance redressal by regulated entities in the IFSC on 2 December 2024, and extended the implementation timeline by a circular of 13 January 2025. Regulated entities are expected to operate an internal complaints mechanism; a failure of that mechanism can itself become the subject of regulatory action.
• Informal guidance. The IFSCA (Informal Guidance) Scheme, 2024, notified by circular on 2 December 2024, allows a person to seek the Authority’s view on the application of a provision. Fees for such requests are set out in the annual fee circular. Guidance is not a substitute for compliance, but it can reduce the risk of a good-faith interpretation becoming an enforcement matter.

What an Entity Should Take From This

• Read the show-cause notice for the parent statutory provision, not only the regulation alleged to have been breached. That provision governs both the maximum penalty and the appellate forum.
• Expect the section 15J-type factors to be argued on quantum, and note that after Bhavesh Pabari those factors are not exhaustive.
• Remember the foreign-currency rule in section 13(5). A penalty expressed in rupees is payable in foreign-currency equivalent at the RBI rate on the date of the order, and delay carries interest.
• Preserve the 45-day appeal window from the date of receipt of the order where the parent statute provides a SAT appeal.

Frequently Asked Questions

1. What are IFSCA’s enforcement powers?

IFSCA can issue directions, warnings and monetary penalties, suspend or cancel registrations, and initiate prosecution under the applicable statutory framework.

2. Which laws govern IFSCA penalties?

Section 13(4) of the IFSCA Act, 2019 applies relevant enforcement and penalty provisions of the statutes listed in its First Schedule.

3. Where can an entity appeal an IFSCA order?

The appellate forum depends on the parent statute under which the order was passed. Securities-related orders may be appealed to the Securities Appellate Tribunal (SAT), where the applicable law provides for such an appeal.

4. What is the time limit for appealing an IFSCA order?

For orders covered by the relevant SAT appeal provisions, the usual limitation period is 45 days from receipt of the order, subject to the applicable law.

5. How is the penalty amount determined?

The applicable parent statute governs the penalty. In relevant securities matters, section 15J of the SEBI Act identifies factors for determining the penalty, although these factors are not exhaustive.

6. What happens if an IFSCA penalty is not paid on time?

Under section 13(5) of the IFSCA Act, the penalty is payable in the prescribed foreign-currency equivalent. Delayed payment may attract interest as specified by the applicable provision or order.

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Setting up in GIFT IFSC requires two distinct approvals: a Letter of Approval to operate as a unit in a Special Economic Zone (SEZ) and the applicable licence, registration, recognition or authorisation from the International Financial Services Centres Authority (IFSCA) for the proposed financial activity. These approvals are governed by two separate laws: the Special Economic Zones Act, 2005 and the International Financial Services Centres Authority Act, 2019. Since 2024, a common administrative process has streamlined the route for obtaining both approvals.

This guide to setting up in GIFT IFSC explains the legal framework behind this process and outlines the approval steps published by IFSCA, including the joint application, post-approval formalities, regulatory fees and ongoing compliance requirements. Specific eligibility conditions for fund managers, banks, insurers and financial intermediaries depend on the applicable IFSCA regulations and are covered separately.

The Legal Basis: The 2024 Section 31 Notification

Section 31 of the IFSCA Act allows the Central Government to apply other Central Acts to IFSC financial products, services and institutions with modifications. By a notification dated 28 February 2024, the Ministry of Finance used this power to modify the SEZ Act and the SEZ Rules, 2006 for units requiring recognition, registration, licence or authorisation by IFSCA.

The effect of the modifications is as follows.

• Section 12 of the SEZ Act: the powers and functions of the Development Commissioner (other than those under section 12(3)) are to be discharged by an officer nominated by IFSCA, designated the “Administrator (IFSCA)”.
• Section 13: for such units, the Administrator (IFSCA) chairs the Approval Committee.
• Section 15: a person proposing to set up such a unit submits its proposal to the Administrator (IFSCA). The proposal also goes to the Approval Committee, and the Administrator (IFSCA) may grant the Letter of Approval once the proposal is approved. The Administrator must share information on these units with the SEZ Development Commissioner.
• Rule 17 of the SEZ Rules: applications for such units are made to the Administrator (IFSCA) in a new consolidated Form FA, instead of Form F. The form as notified calls for a payment of ₹5,000 with the application, along with a project report.

Form FA asks for the applicant’s constitution, the area of business proposed under IFSCA regulations, directors or partners, investment in office equipment, office-space requirement, employment and shareholding. It also asks whether the applicant or its directors or partners have been proceeded against or debarred under the Foreign Trade (Development and Regulation) Act, 1992, FEMA, the Customs Act, 1962 or the Central Excise Act, 1944. An affidavit in support is required.

The result is a single administrative gateway. It is not a merger of the two legal approvals. The Letter of Approval remains an SEZ Act instrument; the Certificate of Registration remains an IFSCA instrument under the relevant regulations.

The GIFT IFSC Approval Process: Step-by-Step

IFSCA has published an indicative workflow for setting up a unit in GIFT City through its Single Window IT System (SWIT). Version 1.0 was uploaded in July 2026. The Authority clarifies that the workflow remains subject to applicable regulations. The following steps are based on that document.

Stage 1: Pre-application

1. Office space and corporate vehicle (in parallel). Identify office space with a co-developer and execute a letter of intent. Reserve a name with the Ministry of Corporate Affairs if a company or LLP is to be incorporated. Name reservation does not apply where the entity is a branch of an existing company or LLP.
2. Provisional allotment. Obtain a Provisional Letter of Allotment and no-objection certificate from the co-developer.
3. Incorporation. Incorporate the company or LLP and obtain PAN and TAN. This step, too, does not apply to branches.

Stage 2: The joint application and approvals

4. SWIT application. File a joint application on the SWIT portal. It is addressed both to the Administrator (IFSCA), for SEZ approval, and to IFSCA, for regulatory approval.
5. SEZ scrutiny. Rectify any deficiencies in the SEZ application on the SEZ Online portal. Appear before the Unit Approval Committee, online or in person, once the application is placed on its agenda.
6. Two parallel outcomes. The Administrator (IFSCA) issues the Letter of Approval through SEZ Online. Separately, IFSCA’s regulatory department grants in-principle approval through SWIT, where the relevant regulation provides for one. The applicant submits the Letter of Approval to IFSCA.

Stage 3: Post-approval formalities (largely in parallel)

7. The workflow lists five parallel steps: – submit a bond-cum-legal undertaking in Form H of the SEZ Rules to the Administrator (IFSCA), which issues the approved undertaking and an eligibility certificate; – obtain Importer-Exporter Code registration; – obtain registration-cum-membership certification (RCMC) registration; – open a foreign currency account with an IFSC Banking Unit and a special non-resident rupee (SNRR) account with a domestic bank branch, and complete overseas direct investment capital infusion where needed after IFSCA’s in-principle approval; – apply for GST registration through SWIT.
8. Lease. Enter into a lease agreement with the co-developer. File a copy with IFSCA through SWIT within six months of the Letter of Approval.
9. Final regulatory approval. Obtain the Certificate of Registration (or equivalent) from IFSCA through SWIT.

Stage 4: Operational commencement

10. Register under Gujarat’s shops and establishments law and for professional tax, for both employer and employees.
11. Obtain SEZ employee identity cards.
12. Issue the first invoice or execute the first transaction. Then submit a request for recording the date of commencement of production (DCP) on the SEZ portal.
13. Intimate IFSCA’s regulatory team of the start of operations, where applicable.

Fees Payable to IFSCA

Regulatory fees are governed by IFSCA Circular IFSCA-DTFA/1/2026 dated 2 March 2026, which sets the fee structure for FY 2026-27. The circular establishes eight categories of charge:

The circular also covers fees under IFSCA’s Informal Guidance Scheme, 2024. If the licence or registration fee is not paid within the specified time, IFSCA may treat the applicant as not wishing to proceed and close the application, and a fresh application is then required. The specific amounts vary by activity and are set out in Schedule I to the circular.

Points that Commonly Cause Delay or Legal Difficulty

• Treating the Letter of Approval as permission to operate. For a regulated activity, the Letter of Approval is not the regulatory licence. Commencing the activity before the IFSCA registration is granted risks breaching the relevant regulations.
• Sequencing capital infusion. The workflow places overseas direct investment capital infusion after IFSCA’s in-principle approval, “when required”. An Indian parent’s investment is also governed by the overseas investment framework (see Article 13), which has its own reporting obligations.
• Branch versus subsidiary. Several steps, including name reservation and incorporation, apply only to new companies and LLPs. A branch raises different questions of corporate law and regulatory eligibility, which the activity-specific regulations answer.
• Lease filing deadline. The six-month window for filing the lease with IFSCA is easy to overlook. It runs from the Letter of Approval, not from the regulatory registration.
• Disclosure in Form FA. The form requires disclosure of past proceedings or debarment under specified trade, customs and foreign exchange statutes. It is supported by an affidavit, and the undertaking accepts that approvals obtained on incorrect statements are liable to cancellation.

Status As of 17 September 2026

The section 31 notification of 28 February 2024 and the fee circular for FY 2026-27 are in force. The SWIT workflow is administrative guidance that describes practice; the binding requirements remain those in the SEZ Act and SEZ Rules as modified, and in IFSCA’s regulations and circulars.

Keeping the Approvals Alive

Setting up is not the end of the approval sequence. By circular dated 10 August 2026, IFSCA directed all regulated entities to hold a valid and subsisting Letter of Approval under the SEZ Act, together with the applicable IFSCA registration, licence or other regulatory instrument, at all times. The circular records that a Letter of Approval is valid for one year where business has not commenced and five years after commencement, with renewal to be sought at least two months before expiry. Conducting business without these documents exposes the entity to action under both the IFSCA Act and the SEZ Act, including penalties, suspension or cancellation. Diarise the renewal date.

FAQ

1. What approvals are required to set up in GIFT IFSC?

A Letter of Approval under the SEZ Act and the applicable IFSCA licence or registration are generally required.

2. What is the role of the 2024 Section 31 notification?

It modifies the SEZ Act and Rules to route specified IFSC unit approvals through the Administrator (IFSCA).

3. How do you apply for GIFT IFSC approvals?

Applicants submit a joint application through the Single Window IT System (SWIT) for SEZ and regulatory approvals.

4. Does the Letter of Approval permit regulated financial activities?

No. The applicable IFSCA licence, registration or authorisation must also be obtained before commencing the regulated activity.

5. What fees apply to IFSCA registration?

Fees vary by activity and may include application, registration, recurring, processing and late-payment charges.

6. How long is the SEZ Letter of Approval valid?

As stated in IFSCA’s August 2026 directions, validity is generally one year if business has not commenced and five years after commencement, subject to applicable renewal requirements.

The post Setting Up in GIFT IFSC: The Letter of Approval, IFSCA Registration and the SWIT Process appeared first on Bhatt & Joshi Associates.

A company incorporated in GIFT IFSC is an Indian company. For foreign exchange purposes, however, it is treated as a person resident outside India. It also sits within a Special Economic Zone that is deemed to be outside India’s customs territory for authorised operations. For income-tax purposes, it remains resident in India. These classifications do not contradict one another; each applies under a different legal framework. Understanding the legal status of entities in GIFT City IFSC requires examining the specific laws governing each of these classifications.

The Four Legal Statuses of IFSC Entities in GIFT City

Layer One: An SEZ Unit

GIFT IFSC is set up under section 18 of the Special Economic Zones Act, 2005 (SEZ Act). Section 2(q) defines an International Financial Services Centre by reference to Central Government approval under that section. Section 2(zc) defines a “Unit” to include “a Unit in an International Financial Services Centre”.

An IFSC entity is therefore an SEZ unit before it is anything else. That status carries two practical consequences.

• Approval and authorised operations. An entity must hold SEZ approval for its authorised operations, in addition to any IFSCA registration. (Article 3 explains the procedure.)
• Customs fiction. Section 53(1) of the SEZ Act deems an SEZ to be “a territory outside the customs territory of India for the purposes of undertaking the authorised operations”. The fiction is expressly purposive. It concerns customs, and flows into indirect-tax treatment. It does not make the SEZ foreign territory for other purposes.

The IFSCA Act, 2019 builds on this foundation rather than replacing it. Under section 2, it applies to IFSCs “set up under section 18” of the SEZ Act.

Layer Two: A Person Resident Outside India under FEMA

The most commercially significant characterisation comes from the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 (the FEMA IFSC Regulations). The RBI made these regulations under section 47 of the Foreign Exchange Management Act, 1999 (FEMA).

Regulation 3 provides that any financial institution, or branch of a financial institution, set up in the IFSC and permitted or recognised as such by the Government of India or a regulatory authority “shall be treated as a person resident outside India”.

Regulation 4 provides that such an institution is to conduct business in such foreign currency, and with such persons (resident or otherwise), as the concerned regulatory authority determines. A proviso inserted in January 2020 allows the RBI, by general or specific permission, to let such an institution conduct business in Indian rupees with persons it determines.

Regulation 5 provides that, save as otherwise provided or directed by the RBI, nothing in any other FEMA regulations applies to such an institution.

Three points about scope are often missed.

1. The deeming is confined to financial institutions. Regulation 2 defines a financial institution by reference to entities “engaged in rendering financial services or carrying out financial transactions”. Its explanation lists examples such as banks, non-banking financial companies, insurers, brokers, investment banks, pension funds, mutual funds, trusts, exchanges and clearing houses. Whether an entity outside those categories, such as a pure technology or support-services unit, falls within regulation 3 therefore depends on its activity and its recognition by a regulator. It should not be assumed.
2. The deeming operates within FEMA. Regulation 3 treats the institution as non-resident for foreign exchange purposes. It does not change the entity’s place of incorporation, its status under the Companies Act, 2013, or its residence under tax law.
3. The counterparty is still governed by its own FEMA rules. Because an IFSC institution is non-resident for FEMA purposes, a transaction between it and a person resident in India is, from the resident’s side, generally a cross-border transaction. The resident’s permissions therefore come from the instruments that govern residents. Examples are the Liberalised Remittance Scheme for individuals and the overseas investment framework for Indian entities. They do not come from the FEMA IFSC Regulations. (Articles 12 and 13 examine these routes.)

Since 1 October 2020, section 44A of FEMA, inserted by the IFSCA Act, has provided that the RBI’s powers under FEMA do not extend to the IFSC, and are exercisable by IFSCA, “in so far as regulation of financial products, financial services and financial institutions that are permitted in the International Financial Services Centres are concerned”. IFSCA therefore now performs the RBI’s regulatory role within the IFSC. The FEMA IFSC Regulations nonetheless remain the source of the non-resident deeming.

Layer Three: An Indian Company for Corporate Law

A company incorporated in GIFT IFSC is incorporated under the Companies Act, 2013. It is subject to that Act, as modified for IFSC companies by the Ministry of Corporate Affairs’ exemption notifications (see Article 44). Its directors owe statutory duties under Indian law. Its shares are governed by Indian company law. Its winding up or insolvency falls to be considered under Indian insolvency and company law, as Article 46 explains.

The same is true of LLPs formed under the Limited Liability Partnership Act, 2008. Where a foreign bank or company operates through a branch rather than a subsidiary, the branch is not a separate legal person. The foreign entity’s obligations under Indian law, including registration requirements for foreign companies, must be considered separately.

Layer Four: Resident for Income-Tax

Under section 6(10) of the Income-tax Act, 2025, a company is resident in India in a tax year if it is an Indian company, or if its place of effective management is in India. An IFSC company incorporated in India is therefore resident for tax purposes. It is taxable on its worldwide income, subject to the IFSC-specific deductions and exemptions discussed in Articles 5 to 7.

Treaty access follows the same logic. An IFSC company that is resident in India may seek the benefit of India’s double taxation avoidance agreements as an Indian resident. The treaty and anti-abuse conditions apply to it as they would to any other Indian resident.

Why the Layering Matters: Three Illustrations

A foreign parent lends to its IFSC subsidiary. The IFSC subsidiary is a financial institution. Under FEMA it is treated as non-resident, so the loan is not an external commercial borrowing by a resident. It remains a transaction by an Indian company, however, which may engage Indian corporate-law approvals, and its interest is subject to Indian tax rules.

An Indian company pays fees to an IFSC fund manager. From the Indian company’s side, the payment is a remittance to a person resident outside India. The Indian company’s bank will look to the current-account framework. The fund manager’s own tax position is determined under the Income-tax Act, 2025 as a resident.

Goods are brought into the IFSC. For customs purposes, section 53 of the SEZ Act treats the SEZ as outside the customs territory for authorised operations. That fiction answers the customs question only. It does not decide how the importing entity is characterised under FEMA or the Companies Act.

A Note on Terminology

Market literature sometimes describes GIFT IFSC as “offshore” or a “foreign jurisdiction within India”. These phrases are convenient, but they are not legal categories. The statutes use narrower and more precise language:

The correct characterisation always depends on the statute being applied. When a contract, an opinion or a regulatory filing describes an IFSC entity, the safer drafting is to identify the specific provision under which a particular status is claimed.

Frequently Asked Questions (FAQs)

1. What is the legal status of an IFSC entity in GIFT City?

An IFSC entity may have different legal statuses under SEZ law, FEMA, company law and income-tax law, depending on the applicable statute.

2. Is a GIFT IFSC company an Indian company?

Yes. A company incorporated in India in GIFT IFSC is an Indian company under the Companies Act, 2013.

3. Is an IFSC entity treated as a non-resident under FEMA?

Qualifying financial institutions established in an IFSC are treated as persons resident outside India under Regulation 3 of the FEMA IFSC Regulations, 2015.

4. Is a GIFT IFSC company a tax resident of India?

Yes. An Indian-incorporated IFSC company is resident in India for income-tax purposes under Section 6(10) of the Income-tax Act, 2025.

5. Does GIFT IFSC qualify as foreign territory under Indian law?

No. The SEZ Act deems it outside India’s customs territory for authorised operations only. This does not make it foreign territory for all legal purposes.

The post Inside India, Outside for FEMA: The Legal Status of a GIFT IFSC Unit appeared first on Bhatt & Joshi Associates.