Executive Summary

The gift city vs mainland india fund debate has emerged as one of the most consequential structural decisions facing fund managers, treasury departments, and financial intermediaries in India as of 2026. Gujarat International Finance Tec-City (GIFT City), located in Gandhinagar, Gujarat, hosts India’s sole International Financial Services Centre (IFSC) and operates under a distinctive regulatory and fiscal architecture that differs materially from the mainland Indian framework. The International Financial Services Centres Authority (IFSCA), established under the IFSCA Act 2019, functions as the unified regulator for all financial services conducted within the IFSC, consolidating oversight that on the mainland would be distributed across the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Insurance Regulatory and Development Authority of India (IRDAI).

This article provides a structured comparative analysis of the key dimensions — taxation, currency regime, regulatory framework, eligible investor base, listing infrastructure, and operational costs — that should inform the domicile decision for funds and treasury structures. The analysis is grounded in the statutory framework as it stands in June 2026, including the Income Tax Act 1961, the Foreign Exchange Management Act 1999 (FEMA), IFSCA (Fund Management) Regulations 2022, and applicable CBDT notifications. The article is strictly educational and does not constitute legal or financial advice.

Statutory Framework

The IFSCA Act 2019 and the GIFT City IFSC

The IFSCA Act 2019 established the International Financial Services Centres Authority as a statutory body with jurisdiction over all financial products, financial services, and financial institutions operating within an IFSC. Prior to the enactment of the IFSCA Act, entities in GIFT City operated under the concurrent jurisdiction of multiple regulators — SEBI for capital markets, RBI for banking and forex, and IRDAI for insurance — which created jurisdictional ambiguity. The IFSCA Act resolved this by vesting consolidated regulatory authority in a single body, making GIFT City a genuine single-window regulatory jurisdiction.

The IFSC is a notified zone under Section 2(q) of FEMA 1999, and the Foreign Exchange Management (International Financial Services Centre) Regulations 2015 (as amended) govern foreign exchange transactions within the IFSC. The fundamental premise is that for FEMA purposes, an IFSC unit is treated as a person resident outside India, enabling it to transact in foreign currencies without the exchange control restrictions that apply to mainland entities.

IFSCA (Fund Management) Regulations 2022

The IFSCA (Fund Management) Regulations 2022 (FMR 2022) govern the registration, operation, and winding up of fund management entities (FMEs) and funds within the GIFT City IFSC. The FMR 2022 establishes three principal categories of funds: Venture Capital Schemes, Restricted Schemes (analogous to Category I and II AIFs on the mainland), and Retail Schemes. Registration requirements, minimum corpus thresholds, and eligible investor criteria are set out in the FMR 2022 and differ in significant respects from the SEBI (Alternative Investment Funds) Regulations 2012 that govern mainland AIFs.

Under the FMR 2022, FMEs are permitted to manage funds that primarily invest in assets outside India, as well as certain domestic Indian assets through specified routes. The regulations permit a fund established in the IFSC to be structured as a company, limited liability partnership, trust, or contractual arrangement, offering structural flexibility that exceeds what is available to mainland AIFs which are predominantly trust-based.

Taxation: Section 80LA of the Income Tax Act 1961

The most significant fiscal incentive for IFSC entities is the deduction available under Section 80LA of the Income Tax Act 1961. An IFSC unit is eligible to claim a deduction of 100 percent of its income from specified activities for any ten consecutive years within the first fifteen years of commencement of operations. The qualifying income encompasses income from banking, insurance, fund management, and specified financial services conducted from the IFSC. It is important to note that the deduction applies to income arising from operations within the IFSC and is subject to conditions including filing of a return of income and obtaining a report from a chartered accountant.

Beyond Section 80LA, the fiscal architecture for IFSC entities includes: exemption from Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT) on transactions on IFSC exchanges; exemption from Dividend Distribution Tax (DDT) (now subsumed into the dividend income regime post the Finance Act 2020, but the IFSC regime provides for specific carve-outs); favourable treatment of capital gains arising from transfer of securities listed on IFSC exchanges to non-residents under Section 47(viiab) of the Income Tax Act; and a reduced withholding tax rate of 4 percent (under Section 194LC and 194LD in applicable contexts) on interest income paid by IFSC units to non-residents.

Foreign Exchange and Currency Regime

FEMA 1999 and the FEMA (IFSC) Regulations establish the operative currency framework. Transactions within the IFSC are denominated in foreign currencies — principally the United States Dollar — rather than in Indian Rupees. An IFSC unit is permitted to open and maintain accounts in foreign currency with banks operating in the IFSC. The notional treatment of IFSC units as non-residents under FEMA means that capital flows between an IFSC unit and overseas counterparties are largely free of exchange control approvals that would otherwise be required under the Liberalised Remittance Scheme or the External Commercial Borrowing framework.

Mainland Indian entities, by contrast, operate in Indian Rupees and are subject to the full ambit of FEMA capital account controls, RBI approval requirements for certain transactions, and the hedging obligations that accompany foreign currency exposures.

Procedural Landscape

Comparative Table: GIFT City IFSC vs Mainland India — Fund and Treasury Domicile

Registration Process for an FME in GIFT City IFSC

The process for establishing a Fund Management Entity in the GIFT City IFSC under the FMR 2022 involves the following sequential steps.

First, the applicant entity must be incorporated or registered in the IFSC — this may be a company incorporated under the Companies Act 2013 with a registered office in the IFSC, an LLP formed under the Limited Liability Partnership Act 2008, or a trust constituted under applicable law. Second, the applicant submits an application for registration as a Fund Management Entity to the IFSCA in the prescribed form, along with prescribed fees, a business plan, details of key managerial personnel, and disclosures relating to the principal shareholders. Third, the IFSCA reviews the application, may seek clarifications, and upon satisfaction grants a Certificate of Registration in the applicable category (Retail FME, Restricted FME, or Venture Capital FME). Fourth, the registered FME must appoint a compliance officer, a principal officer with specified qualifications, and establish risk management and compliance frameworks. Fifth, for each fund to be launched, a scheme document (private placement memorandum or scheme information document) is filed with the IFSCA, and the fund is constituted in accordance with the structural requirements of the FMR 2022.

Treasury Domicile Considerations

For corporate treasury operations, the GIFT City IFSC permits the establishment of IFSC Banking Units (IBUs) by Indian and foreign banks. An IBU is a branch of a bank operating within the IFSC and is treated as a foreign branch for FEMA purposes. Corporates with significant foreign currency borrowings, trade finance requirements, or multi-currency treasury operations may find that housing treasury activities through an IFSC-domiciled structure — either through a wholly-owned subsidiary or through IFSC-eligible instruments — reduces FEMA compliance burdens and provides access to competitive international interest rates. However, the inability of IFSC units to directly serve Indian residents in many product categories means that a hybrid structure maintaining both mainland and IFSC entities is common in practice.

Key Judicial Precedents

Indian courts have not, as of June 2026, produced a definitive body of jurisprudence specifically on GIFT City IFSC fund structures, reflecting the relative novelty of the framework. However, several precedential principles from the Supreme Court of India bear on the interpretation of IFSC-related provisions.

The Supreme Court’s decision in Commissioner of Income Tax v. Vodafone International Holdings BV (2012) 6 SCC 613 established the primacy of substance and form in international tax structuring and the importance of examining the true character of transactions. While the case predates the IFSC framework, its analytical approach to treaty and statutory interpretation remains relevant to IFSC entities relying on beneficial tax provisions: the court emphasised that legitimate structuring aimed at tax efficiency within statutory parameters is permissible, but the substance of the arrangement must match its form.

On the interpretation of Section 80LA, the Madras High Court in CIT v. Sak Soft Ltd (2009) 180 Taxman 89 considered the conditions for claiming special economic zone deductions (under the predecessor SEZ framework) and affirmed that the deduction is available provided the statutory conditions are strictly complied with. The principle of strict but not pedantic compliance with tax incentive provisions in SEZ/IFSC contexts has been applied in subsequent ITAT orders.

Regarding the FEMA treatment of IFSC units, the Reserve Bank of India’s operational guidelines and IFSCA circulars constitute the primary quasi-regulatory instruments, and there are no Supreme Court decisions specifically addressing the non-resident characterisation of IFSC units under FEMA. The legal framework has largely operated within the administrative domain.

On the question of whether SEBI regulations apply to IFSC entities, the jurisdictional delineation established by the IFSCA Act 2019 — specifically Section 13, which gives IFSCA primacy over financial services in IFSCs — has been consistently applied at the administrative level, with SEBI formally recognising IFSCA’s exclusive jurisdiction over IFSC fund managers.

Conclusion

The gift city vs mainland india fund domicile decision in 2026 involves a nuanced balancing of significant fiscal advantages against structural constraints. The GIFT City IFSC offers a compelling proposition for fund managers and treasury units targeting non-resident capital: a unified regulatory framework under IFSCA, a 100 percent income tax deduction under Section 80LA for ten of the first fifteen years of operation, exemption from STT/CTT, favourable capital gains treatment for non-residents on IFSC exchange-listed securities, and full foreign currency operations outside the domestic FEMA capital account controls.

The mainland India framework, by contrast, offers access to resident Indian investors, an established infrastructure and service provider ecosystem, and regulatory familiarity. For fund managers whose target investor base includes Indian resident HNIs, family offices, or domestic institutions, a mainland AIF registration under SEBI regulations remains the appropriate structure.

In practice, the most sophisticated fund architectures in 2026 employ parallel structures — an IFSC-domiciled FME or fund for international capital, and a SEBI-registered AIF on the mainland for domestic capital — with appropriate ring-fencing to ensure regulatory compliance in each jurisdiction. The IFSCA has signalled a continued legislative and regulatory push to expand the scope of permissible activities within the IFSC, and the framework is expected to evolve further.

Practitioners and fund managers navigating the GIFT City vs mainland India domicile question should undertake detailed due diligence across the regulatory, tax, and investor relations dimensions, taking particular care to assess whether the investor base sought is eligible to invest in an IFSC-domiciled fund and whether the substance requirements for Section 80LA claims will be satisfied.

The post GIFT City vs Mainland India in 2026: Where Should Your Fund or Treasury Be Domiciled? appeared first on Bhatt & Joshi Associates.

Introduction

In Part 4, we discussed how to set up an InsureTech VC Fund in GIFT City IFSC — now in Part 5, we need to look at how that fund sits within the bigger picture, because the moment you add a mainland IRDAI entity to the mix, you have three regulators, a FEMA question, and a transfer pricing problem all arriving at the same time

The four lanes operate before separate regulators — IRDAI for Lane 1, IFSCA for Lanes 2 and 4 and (if structured as a GIC) Lane 3A, and the ordinary mainland corporate regulators (ROC / MCA) for Lane 3B. The GIFT City insurance regulations framework, administered by IFSCA, applies to the IFSC lanes and operates on materially different terms from the IRDAI mainland regime. The four regulators do not coordinate routinely, and inter-regulator questions arising at the intersections are typically left to the entity and its counsel to resolve. Three cross-regulator questions require attention in any four-lane strategy: the related-party relationship between the Lane 1 insurer and the Lane 2 IIO; the aggregation of Place of Effective Management (POEM) indicators across the four lanes; and the treatment under FEMA of sectoral-cap aggregation.

Understanding GIFT City Insurance Regulations in India

The GIFT City insurance regulations framework in India operates through a dual-regulator structure, where the International Financial Services Centres Authority governs IFSC-based entities and the Insurance Regulatory and Development Authority of India regulates mainland insurance operations. Entities set up in GIFT City IFSC transact in foreign currency and are treated as “persons resident outside India” under the Foreign Exchange Management Act, 1999, creating a ring-fenced regulatory environment distinct from the domestic regime. This separation enables global insurance groups to structure multi-jurisdiction operations across the IFSC and mainland, forming the basis of the four-lane strategy discussed below.

Lane 1 — Lane 2 Related-Party Reinsurance

The common strategic pattern in a multi-lane insurance entry is for the Lane 1 mainland insurer to cede a portion of its reinsurance programme to the Lane 2 IIO — the GIFT City branch of the foreign parent reinsurer. The cession is commercially natural: under the IFSCA reinsurance framework, the Lane 2 IIO is a qualified reinsurer under the order-of-preference framework, and intra-group reinsurance is a common feature of multi-jurisdiction insurance operations globally. What makes the Lane 1 / Lane 2 cession regulatorily distinctive is that both entities are part of the same foreign insurance group — which brings the transaction within related-party transfer-pricing scrutiny and, in certain fact patterns, within IRDAI’s regulatory oversight of reinsurance arrangements.

IRDAI Related-Party Scrutiny

Under the IRDAI (Re-insurance) Regulations, cessions by an Indian insurer to a reinsurer that is a related party are subject to heightened scrutiny. The IRDAI expects the Indian insurer to demonstrate that the cession is at arm’s-length terms, that it is economically justified by the reinsurer’s capacity and ratings, and that it does not constitute a circular flow of funds designed to extract capital from the Indian operation. The demonstrations typically involve: independent reinsurance pricing benchmarks; the Lane 2 IIO’s parent-level financial strength rating and capacity; the Lane 1 insurer’s reinsurance programme across all its cessionaires; and the commercial rationale for the Lane 2 placement in the context of the group’s global retrocession architecture.

Transfer Pricing

Reinsurance transactions between related parties are international transactions under the Indian transfer pricing framework. The arm’s-length pricing of the reinsurance premium, the commission, and any profit-commission arrangements must be documented in the master file and local file of the Lane 1 insurer. Advance Pricing Agreements (APAs) are available for related-party reinsurance arrangements and are recommended where the cession volume is material.

The Sahara Precedent — A Qualification

Secondary commentary sometimes cites the Sahara proceedings as authority for the proposition that IRDAI will aggregate exposures to related parties across multiple Indian entities. The Sahara position is more nuanced. IRDAI has discretionary authority to aggregate exposures where it considers the exposures are, in substance, to a single ultimate counterparty — the exercise is not automatic, and the factual showing required is fact-specific. Quoted as a hard rule, the Sahara proposition overstates the position. Cited as a reminder that related-party aggregation is within IRDAI’s discretionary regulatory toolkit, it is a useful structural point for multi-lane planning.

POEM Considerations Across the Four Lanes

The Place of Effective Management (POEM) framework under Section 6(3) of the Income Tax Act, 1961 (retained and extended in the Income Tax Act, 2025) determines whether a foreign company is a resident of India for Indian tax purposes. POEM is the place where key management and commercial decisions necessary for the conduct of the business as a whole are, in substance, made. For a foreign insurance group running the four lanes simultaneously, the four lanes together create a substantial Indian operational footprint that requires careful governance to avoid triggering POEM for the foreign parent.

Why the Four-Lane Structure Creates POEM Exposure

A conventional foreign subsidiary running only Lane 1 presents a routine POEM analysis: the Indian subsidiary is Indian-resident by incorporation, and the foreign parent remains foreign-resident so long as its board meetings, strategic decisions, and senior management are located outside India. The four-lane architecture complicates the analysis because the foreign parent has, in substance, three additional Indian operational arms (Lanes 2, 3 and 4), each of which may involve senior management attention, strategic decision-making and the physical presence of the parent’s key personnel. If the aggregate of that attention and presence crosses the POEM threshold, the foreign parent itself may be treated as Indian-resident, with significant adverse tax consequences.

Governance to Manage POEM Exposure

• Board location — Parent board meetings should continue to be held outside India, with Indian directors (if any) attending by video and the quorum satisfied outside India. Physical board meetings in India should be infrequent and exceptional.
• Senior management location — The parent’s CEO, CFO, COO and other Chief Officers should continue to be based outside India. Indian KMPs should be KMPs of the Indian Lane 1 subsidiary (or of the Lane 2, 3, 4 entities), not of the parent.
• Decision-making — Strategic decisions of the parent — group-level capital allocation, investment strategy, M&A, risk appetite — should be documented as taken outside India, with clear records of where and by whom.
• Indian footprint structure — The Lane 2, 3 and 4 entities should be run by their own in-IFSC or in-India management, with authority delegated locally rather than exercised from India by parent officers visiting India.
• Parent officer visits — Senior parent officers visiting India should do so for specified, documented purposes — board meetings of the Indian subsidiary, regulatory meetings, or specific strategic reviews — and not as a general pattern of Indian-based oversight.

The Circular on Active Business Outside India

CBDT Circular No. 6/2017 (dated 24 January 2017) sets out guidelines for determining POEM, including a safe harbour test for companies engaged in “active business outside India”. A foreign insurance group whose business is substantially located outside India — most global insurance groups of any size — is ordinarily within the active-business safe harbour, and POEM is not triggered by the Indian lanes so long as the active-business conditions are satisfied and the governance safeguards in Section 18.2 are maintained.

Sectoral-Cap Aggregation Under FEMA

A structural feature of the Indian FDI framework is the sectoral cap — the maximum aggregate foreign investment permitted in an Indian entity in a given sector. For insurance, the sectoral cap is now 100% under Press Note No. 1 of 2026. The question that arises in multi-lane planning is whether the IFSC lanes (Lanes 2, 3A and 4, each located in the GIFT City IFSC) are aggregated with the Lane 1 mainland subsidiary for sectoral cap purposes.

The FEMA IFSC Framework

Under the FEMA (International Financial Services Centre) Regulations and the underlying treatment of the IFSC as “deemed foreign territory” for FEMA purposes, an entity resident in the IFSC is treated as a “person resident outside India”. Each India IFSC foreign insurer or reinsurer operating through Lanes 2, 3A, or 4 therefore sits outside the mainland FDI aggregation framework as a matter of regulatory design. The three IFSC lanes (Lane 2 IIO, Lane 3A IFSCA GIC, Lane 4 IFSCA FME) are each deemed non-resident entities. They are, for FDI sectoral cap purposes, outside the mainland FDI framework.

The Aggregation Point

The consequence for sectoral cap aggregation is that the IFSC lanes are not aggregated with the Lane 1 mainland subsidiary. The 100% sectoral cap applied to the Lane 1 Indian insurance company is measured by reference to the foreign investment in that Indian insurance company, not by reference to the group’s aggregate Indian presence. This distinction is a core feature of cross-border insurance compliance in India: the IFSC regulatory envelope is intentionally ring-fenced from the mainland FDI framework to facilitate global risk placement through GIFT City. For the pre-100% regime (and for other Indian sectors where a sectoral cap below 100% continues to apply), the IFSC treatment as “resident outside India” is a structurally important feature.

Where the Mainland Lane 3B Sits

If Lane 3 is structured as a mainland private limited company rather than an IFSC GIC, the mainland Lane 3B is itself an Indian company subject to ordinary FDI rules. The GIFT City insurance regulation perimeter does not extend to Lane 3B; that lane is governed exclusively by MCA, ROC, and the applicable sectoral regulator for the services it provides. For the IT / software / services sector, 100% automatic route applies, so the Lane 3B subsidiary can also be 100% foreign-owned. The Lane 3B subsidiary is aggregated, for ordinary Indian company purposes, with any other Indian companies in which the group invests — but the aggregation is within each sector, and the Lane 1 and Lane 3B subsidiaries are in different sectors (insurance and IT services respectively).

FAQ Section 

1. What is the GIFT City insurance regulation framework and how does it differ from the IRDAI mainland regime?

The GIFT City Insurance Regulations are administered by IFSCA and apply exclusively within the GIFT City IFSC. Unlike the IRDAI mainland regime, IFSCA-licensed entities transact in foreign currency, are treated as “persons resident outside India” under FEMA, and follow IFSCA’s own solvency and governance rules. The two regimes operate independently and require separate compliance.

2. Can a Lane 1 Indian insurer cede reinsurance to its related-party Lane 2 IIO in GIFT City, and what documentation is required?

Yes. A Lane 1 insurer may cede reinsurance to its related Lane 2 IIO in GIFT City, subject to IRDAI’s arm’s-length scrutiny. Required documentation includes a Board-approved reinsurance programme, independent pricing benchmarks, written treaties, and quarterly cession reports. An Advance Pricing Agreement (APA) is recommended where cession volumes are material.

3. Does a foreign insurance group running all four India lanes risk triggering POEM for its overseas parent entity?

Yes, the four-lane structure increases POEM exposure for the foreign parent. The risk is managed by holding board meetings outside India, keeping senior officers (CEO, CFO, COO) offshore, and ensuring each lane entity is run by locally-delegated management. Most large foreign insurance groups will also qualify for the CBDT active-business safe harbour under Circular No. 6/2017.

4. Are GIFT City IFSC entities aggregated with the Lane 1 mainland subsidiary for India’s 100% FDI sectoral cap calculation?

No. Under FEMA, GIFT City IFSC entities are treated as “persons resident outside India” and fall outside the mainland FDI sectoral cap calculation. The 100% cap on the Lane 1 insurer is measured solely against foreign investment in that entity. This ring-fencing is a core feature of the GIFT City Insurance Regulations architecture.

5. What are the key cross-border insurance compliance obligations in India for a foreign insurer operating through GIFT City?

Compliance under the GIFT City Insurance Regulations spans four dimensions: (1) IFSCA licensing — holding the correct licence (IIO, GIC, or FME) and meeting solvency and reporting requirements; (2) FEMA — structuring all remittances as permitted transactions; (3) transfer pricing — arm’s-length documentation for any transactions with related Indian entities; and (4) POEM governance — structuring senior management activity to avoid inadvertent Indian tax residency for the foreign parent.

6. How does the Sahara precedent affect related-party exposure aggregation under IRDAI?

The Sahara precedent does not establish automatic aggregation. IRDAI has discretionary authority to treat exposures to related entities as a single counterparty, but only where the facts warrant it. For planning purposes, it serves as a reminder that related-party structures face heightened scrutiny. The practical response is robust arm’s-length documentation and a diversified reinsurance programme.

The post GIFT City Insurance Regulations: How IRDAI, IFSCA & FEMA Work Together in India appeared first on Bhatt & Joshi Associates.

Introduction

Lane 4 is the vehicle for setting up an InsureTech VC Fund in GIFT City — through which the foreign insurance group participates in the Indian and IFSC InsureTech ecosystem, either directly through fund investment or through Special Scheme co-investment. Lane 4 is the smallest lane in capital terms and operationally the lightest, but it is often strategically valuable: it places the group in the investment flow of the ecosystem, complements the Lane 3 technology centre, and creates optionality on the next generation of InsureTech platforms that may become strategic partners or acquisition targets.

Chapter Fourteen: Authorised FME Registration in GIFT City — IFSCA Fund Management Regulations 2025

An InsureTech VC Fund in GIFT City operates under the IFSCA (Fund Management) Regulations, 2025 (notified 19 February 2025, consolidated through 27 January 2026). For this fund structure, the minimum required registration is an Authorised FME — the entry-level category under the IFSCA Fund Management Regulations 2025, permitting Venture Capital Schemes and Family Investment Funds.

Net Worth and Registration

The net worth requirement for an Authorised FME is USD 75,000, maintained under Regulation 8 read with the Second Schedule. The Principal Officer must be based in the IFSC; additional KMP requirements are lighter than for a Registered FME. Registration requires an application pack covering the fund management entity, the proposed fund, the investment policy, the key personnel and their qualifications, and the fund documentation.

VC Scheme Characteristics

A VC Scheme under the Fund Management Regulations is a venture capital pool structured as a trust or LLP or, less commonly, as a company. For an InsureTech VC fund, the VC Scheme format is the natural vehicle. Key scheme characteristics include:

• Corpus — VC scheme may raise capital from permitted investors including foreign investors, family offices, institutional investors, and resident Indian investors within the LRS framework.
• Investor cap — A restricted (non-retail) scheme is subject to a 1,000-investor cap.
• Investment mandate — VC schemes typically invest in unlisted or early-stage listed securities of portfolio companies within the scheme’s declared focus — here, InsureTech.
• Skin-in-the-game — The FME must maintain a skin-in-the-game contribution to the scheme of 2.5% to 10% of the scheme corpus, depending on scheme size, under Regulation 28.
• Pass-through taxation — A VC scheme operates on a pass-through basis under Section 115UB; income and capital gains are taxed in the hands of the investors rather than the scheme. Note that Section 10(4D) applies specifically to Category III IFSC AIFs, not to VC schemes — the tax architecture for VC schemes is the 115UB pass-through regime, not the 10(4D) fund-level exemption.

Venture Capital Scheme Mechanics

The practical mechanics of an InsureTech VC Fund in GIFT City follow the standard VC scheme pattern with three fund-specific design points: the focus mandate, the investor base, and the parent group’s participation.

The InsureTech Focus Mandate

The scheme’s Private Placement Memorandum and its Investment Policy will set out the InsureTech focus mandate — typically covering early-stage and growth-stage companies in underwriting analytics, claims automation, distribution platforms, health-tech intersections, and policy administration technology. The mandate must be clearly defined at the point of IFSCA registration; material deviations during the scheme’s life are matters of PPM amendment and investor consent.

The Investor Base

The investor base may include: the foreign parent insurance group itself (as an anchor investor); other institutional insurance investors globally; Indian family offices within the LRS framework; and IFSC-resident investors. A 1,000-investor cap applies for restricted schemes; the minimum investor contribution is typically set at USD 150,000 or higher depending on scheme design. The parent group’s contribution, together with the FME’s skin-in-the-game, typically constitutes 20% to 30% of the corpus at the first close, with the balance raised from external investors over a 12 to 18 month fundraising period.

Special Scheme Co-Investment

The Fund Management Regulations permit the creation of Special Schemes alongside the main VC scheme — single-asset vehicles in which specific co-investors participate alongside the main scheme in a single portfolio investment. Special Schemes are useful where a particular investment is substantially larger than the fund’s ordinary deployment size, or where strategic investors wish to invest directly alongside the fund in a named portfolio company.

Special Scheme Characteristics

• Anchor requirement — The existing VC scheme holds at least 25% of the Special Scheme.
• Single-asset focus — One portfolio company per Special Scheme.
• Speed — The Special Scheme may invest before notifying IFSCA; the term sheet is to be filed within 45 days.
• Minimum contribution per co-investor — USD 250,000 for Special Schemes launched by a VC scheme; USD 150,000 for Special Schemes launched by a restricted scheme. The IFSCA Circular on Special Schemes cross-references the scheme-specific minimums under the Fund Management Regulations rather than setting a single flat figure.

The foreign insurance group may co-invest alongside the InsureTech VC Fund in GIFT City through the Special Scheme SPV, or may co-invest directly through a separate FDI transaction. Where regulatory clarity is valued, the Special Scheme framework under the IFSCA Fund Management Regulations 2025 is the cleaner route: the SPV is itself IFSCA-registered and its investment flows through the Fund Management framework. Where the group prefers to consolidate the investment at the corporate level, a direct co-investment under the FDI route is available, subject to the applicable FDI and DPIIT conditions.

FAQ

1. What is a venture capital fund in GIFT City IFSC?

A VC fund in GIFT City IFSC is an IFSCA-regulated investment vehicle that invests in startups and early-stage companies.

2. How to set up a venture capital fund in GIFT City IFSC?

Register as an FME with IFSCA, meet net worth requirements, and launch a VC scheme.

3. What is an Authorised FME in GIFT City?

An Authorised FME is a basic IFSCA license to manage venture capital and investment funds.

4. What are the key requirements for VC fund registration in GIFT City?

Minimum net worth, qualified personnel, and compliance with IFSCA regulations.

5. Can foreign investors invest in GIFT City VC funds?

Yes, foreign investors can freely invest in IFSC-based VC funds.

6. What is a VC Scheme under IFSCA regulations?

A VC Scheme is a pooled fund that invests in startups and unlisted companies.

7. What is the tax treatment of VC funds in GIFT City?

VC funds follow pass-through taxation, where investors pay tax.

8. What is a Special Scheme in GIFT City VC funds?

A Special Scheme allows co-investment in a single portfolio company.

9. What is the minimum investment in a GIFT City VC fund?

Typically starts from USD 150,000.

10. Why is GIFT City attractive for VC funds?

It offers tax benefits, global access, and a strong regulatory framework.

The post How to Set Up an InsureTech VC Fund in GIFT City IFSC (IFSCA Regulations 2025 Guide) appeared first on Bhatt & Joshi Associates.

Introduction

In Part I, we looked at how foreign insurers can enter India through a wholly owned presence. In this Part, we move to the IFSC route and examine the GIFT City reinsurance branch as an alternative and often more flexible structuring option for foreign insurers and reinsurers.

Lane 2 is the GIFT City IFSC reinsurance branch. It takes the form of an International Insurance Office (IIO) — a branch of the foreign parent reinsurer or insurer. In most group strategies, this lane serves as the IFSC component of the group’s Indian presence on the underwriting side. Through the order-of-preference framework, the IIO accesses the Indian reinsurance market and transacts in foreign currency. It also operates under a distinct IFSCA regulatory perimeter with its own capital, solvency, and reporting requirements. In addition, Section 147 of the Income Tax Act, 2025 extends its tax advantages to the IIO.

Regulatory Framework — IFSCA Insurance Regulations 2021

Reinsurance operations at the GIFT City IFSC reinsurance branch level are governed by three inter-connected instruments. First, the IFSCA (Registration of Insurance Business) Regulations, 2021 (notified via Notification No. IFSCA/2020-21/GN/REG016 dated 18 October 2021, effective 20 October 2021; amended 4 January 2022 and 14 October 2024). Second, the IFSCA (Insurance Intermediary) Regulations, 2021. Third, and separately applicable to intermediaries, the IFSCA (Operations of International Financial Services Centres Insurance Intermediary Offices) Guidelines, 2021.

The IIO as the Designated Entity Form

The IFSCA framework designates the International Insurance Office (IIO) as the entity form for insurance and reinsurance operations in the IFSC. The IFSCA framework recognises multiple IIO categories. However, foreign insurance groups typically seek to preserve parent balance-sheet strength, global ratings and underwriting efficiency. For them, the optimal structure is a branch IIO rather than a separately incorporated IFSC subsidiary.

Relationship Between the IIO and the Parent

The IIO, constituted as a branch, is the same legal entity as its foreign parent reinsurer. Consequently, the parent’s consolidated balance sheet flows to the IIO directly. So do its regulatory licensing and financial strength rating. The parent must ring-fence the IIO’s operations in the IFSC: separate books, separate records, and separate compliance. Nevertheless, the legal identity remains shared. This structural feature makes the branch IIO cheaper to capitalise and operationally lighter than a separately incorporated IFSC subsidiary.

The International Insurance Office (IIO) — Permitted Business

The IFSCA (Registration of Insurance Business) Regulations, 2021 define permitted IIO business at the GIFT City IFSC reinsurance branch. These permitted activities cover direct insurance and reinsurance on specified terms and within specified cross-border parameters.

Permitted Business Lines

• Reinsurance of risks emanating from outside India, including from the Domestic Tariff Area on terms consistent with the order-of-preference framework.
• Direct insurance of non-resident customers, including non-resident Indians whose risks are located outside India.
• Retrocession between IIOs, between IIOs and foreign reinsurers, and onwards as permitted.
• Specific niche lines — marine, aviation, trade credit, offshore energy, and cyber lines of business, where the IFSC operates with comparative advantages over the mainland framework in cross-border terms.

Currency of Operation

The IIO transacts in freely convertible foreign currency. The FEMA (International Financial Services Centre) Regulations limit Indian Rupee denominated transactions to specifically permitted categories. The IFSC unit’s “person resident outside India” status under FEMA reinforces this restriction. Moreover, this currency framework reinforces the international orientation of the IIO and simplifies tax treatment. Specifically, the Section 147 holiday covers business income in convertible foreign exchange. The 9% MAT / AMT rate applies to IFSC units deriving income solely in foreign exchange.

Branch Structure Under the Insurance Regulations

In their treatment of branch entities, the IFSCA (Registration of Insurance Business) Regulations, 2021 closely parallel the IFSCA (Fund Management) Regulations, 2025. The branch is a permitted IIO form. It carries three obligations: ring-fencing, maintenance of earmarked assigned capital, and the parent-level Net Owned Funds demonstration. Additionally, substance requirements apply at the branch level. These include physical presence in the IFSC of the Principal Officer or CEO, a compliance officer, and operational staff.

Capital, Solvency and Commencement

Assigned Capital

Regulation 17(2) of the IFSCA (Registration of Insurance Business) Regulations, 2021 sets the assigned capital threshold. A branch IIO must demonstrate USD 1.5 million earmarked for its IFSC operations. The parent reinsurer’s balance sheet bears this capital, specifically earmarked for the IIO branch’s solvency. Accordingly, no separate capital injection into a distinct IFSC legal entity is necessary.

Parent Net Owned Funds

Separately, the foreign parent reinsurer must demonstrate Net Owned Funds of INR 1,000 crore on a consolidated basis. This matches the parent-level NOF requirement under the IRDAI Lane 1 framework (Section 6(3) of the Insurance Act, 1938). In most cases, therefore, one consolidated NOF demonstration satisfies both tests at once.

Security Deposit

Market commentary cites a security deposit for the IIO of approximately USD 500,000. This amount is held with a designated bank or equivalent custodian for policyholder protection. Importantly, secondary commentary rather than the express text of Regulation 17 itself supplies this figure. Readers relying on this figure for operational planning should therefore verify it against current IFSCA notifications directly.

Commencement Timeline

Market commentary cites a 4 to 8 month registration timeline for a GIFT City IFSC reinsurance branch IIO. This is significantly shorter than the IRDAI Lane 1 timeline. Like the 18–30 month figure for Lane 1, however, this estimate derives from secondary commentary. Regulation does not prescribe it. Practitioners should therefore treat it as an indicative planning marker only.

Order of Preference — Cessions to IIOs

The IRDAI (Reinsurance) Regulations establish the “order of preference” framework. Under it, a GIFT City IFSC reinsurance branch IIO receives business from the Indian mainland market. Notably, the 2023 amendments reorganised reinsurance cessions from Indian cedants into four streamlined categories.

The Four-Category Order

• Category 1 — Indian reinsurers (principally GIC Re).
• Category 2 — Foreign Reinsurer Branches (FRBs), and IIOs that retain 100% of premium emanating from Indian insurers within the Domestic Tariff Area.
• Category 3 — Other IIOs (that do not meet the Category 2 retention condition).
• Category 4 — Other Indian insurers (on a facultative basis only) and Cross-Border Reinsurers.

The Category 2 placement for qualifying IIOs offers a structural advantage in attracting cessions from Indian cedants. Subject to related-party scrutiny (see Part V), this placement lets an IIO compete effectively for mainland reinsurance business. That holds even where the Lane 1 mainland insurer cedes to the Lane 2 IIO branch of its own parent.

The Category 2 Retention Condition

The Category 2 condition requires the IIO to retain 100% of premium from Indian insurers within the Domestic Tariff Area. This is fundamentally a commercial and operational design choice. An IIO that retrocedes to its parent outside the IFSC in respect of Indian-origin premium consequently falls into Category 3. For many foreign groups, however, Category 2 placement is valuable enough to justify structuring full retention within the IFSC.

Tax Benefits

As an IFSC unit, the IIO qualifies for the full suite of IFSC reinsurance tax benefits. Chief among these is the income tax holiday under Section 147 of the Income Tax Act, 2025. This provision replaces the Section 80LA holiday of the 1961 Act with effect from 1 April 2026. This shift materially improves the regime. Under Section 147, units may claim 20 years out of a 25-year block. That compares with just 10 out of 15 years under Section 80LA.

Anti-Abuse — Section 147(5)

Section 147(5) applies to IFSC units commencing on or after 1 April 2026. It denies the deduction where the unit arose from splitting up, reconstruction, reorganisation or transfer of an existing Indian business. In practice, this rule rarely affects a foreign group establishing a fresh GIFT City IFSC reinsurance branch IIO. Such a branch represents a genuinely new presence, not a reconstituted onshore entity.

The Tax Design Across the Four Lanes

The Section 147 holiday applies across three IFSC lanes: Lane 2 (IIO), Lane 3 (IFSCA GIC, if structured within the IFSC), and Lane 4 (IFSCA FME). Each lane claims the holiday in respect of its own IFSC business income. By contrast, the Lane 1 mainland insurance company falls under the mainland corporate tax regime. This differential treatment between Lane 1 and IFSC Lanes 2–4 is deliberate. The IFSCA regime rewards the international character of each IFSC operation with a favourable tax position. The mainland regime, by contrast, retains the standard corporate tax framework.

Frequently Asked Questions (FAQs)

1. What is an International Insurance Office (IIO) in GIFT City IFSC?

An International Insurance Office (IIO) is the designated structure that allows foreign insurers or reinsurers to operate in GIFT City IFSC. It can be set up as a branch of a foreign parent, enabling access to the Indian reinsurance market under a separate regulatory and tax framework.

2. How can a foreign reinsurer set up a reinsurance branch in GIFT City IFSC?

A foreign reinsurer can establish a branch in GIFT City by registering an IIO under the IFSCA (Registration of Insurance Business) Regulations, 2021. The process involves meeting capital requirements, appointing key personnel, and complying with IFSCA guidelines.

3. What are the capital requirements for an IIO reinsurance branch?

An IIO branch must maintain assigned capital of at least USD 1.5 million. Additionally, the foreign parent must demonstrate Net Owned Funds of approximately INR 1,000 crore on a consolidated basis.

4. What are the tax benefits for reinsurance companies in GIFT City IFSC?

Reinsurance entities operating through an IIO can avail a tax holiday under Section 147 of the Income Tax Act, 2025, offering 100% deduction for 20 consecutive years out of a 25-year block, along with reduced MAT/AMT rates.

5. What is the “order of preference” in reinsurance for IIOs?

The order of preference is a regulatory mechanism under the IRDAI (Reinsurance) Regulations that determines how Indian insurers place reinsurance business. IIOs can qualify for a higher category if they meet certain retention conditions, improving access to Indian market cessions.

6. Can an IIO transact in Indian Rupees?

No, an IIO primarily operates in freely convertible foreign currency. Transactions in Indian Rupees are limited and governed by FEMA regulations applicable to IFSC units.

7. What is the difference between an IIO branch and an IFSC subsidiary?

An IIO branch is an extension of the foreign parent entity and benefits from its balance sheet and ratings, while a subsidiary is a separate legal entity with higher capital requirements and independent compliance obligations.

8. How long does it take to set up an IIO in GIFT City?

Market estimates suggest a timeline of approximately 4 to 8 months for registration and commencement, though this may vary based on regulatory approvals and documentation.

9. Is GIFT City IFSC suitable for reinsurance operations?

Yes, GIFT City IFSC provides a favorable regulatory, tax, and foreign exchange environment, making it an attractive jurisdiction for global reinsurance operations targeting India and cross-border risks.

The post How to Set Up a Reinsurance Branch in GIFT City IFSC (IIO): Regulations, Capital & Tax Benefits Explained appeared first on Bhatt & Joshi Associates.

Introduction: FEMA and Capital Controls in GIFT City PMS

Access to a GIFT City IFSC Portfolio Management Service (PMS) by an Indian resident is not merely a matter of securities regulation. Rather, it is fundamentally governed by foreign exchange law under the Foreign Exchange Management Act, 1999 (FEMA).

Accordingly, any investment by an Indian resident into a GIFT City PMS must comply with the outbound remittance framework prescribed under FEMA and administered by the Reserve Bank of India (RBI).

This article examines:

• how the Liberalised Remittance Scheme (LRS) applies to GIFT City PMS structures, and
• why, despite the apparent flexibility under Regulation 73(3) of the Fund Management Regulations, such PMS structures are effectively restricted to outbound investments

Liberalised Remittance Scheme (LRS) Framework

The Liberalised Remittance Scheme (LRS), introduced under:

• the Foreign Exchange Management (Current Account Transactions) Rules, 2000, and
• subsequent RBI Master Directions

permits a resident individual to remit up to:

USD 250,000 per financial year

for specified permissible purposes, including investment in foreign securities.

LRS and the IFSC: Regulatory Position

Importantly, the RBI has clarified through successive circulars that:

Indian residents may remit funds to IFSC-based entities within the overall LRS limit.

However, this permission is not unconditional.

Specifically, the investment must be made in securities or financial products issued by entities resident in the IFSC — and not in securities issued by entities resident in India (outside the IFSC).

Accordingly, this restriction becomes central to understanding the structural limitations of GIFT City PMS.

The LRS Account Route for GIFT City PMS

In practice, the fund flow for a GIFT City PMS investment typically follows a structured path:

1. The Indian resident remits funds from an Indian bank account under LRS
2. The funds are transferred to the IFSC Fund Management Entity (FME)
3. The FME onboards the client and establishes a discretionary PMS account
4. The FME deploys capital into permitted global securities
5. Upon exit, the FME repatriates proceeds to the investor’s Indian bank account

Important Clarification: LRS Limits Remittance, Not Portfolio Size

It is critical to distinguish between remittance limits and portfolio value.

The USD 250,000 cap applies only to annual outward remittance, not to the total size of the PMS portfolio.

Therefore:

• the portfolio may grow beyond USD 250,000
• appreciation and reinvestment can significantly increase value
• multi-year remittances can result in a substantially larger offshore portfolio

KYC, TCS and Compliance Requirements

LRS transactions involve layered compliance obligations across jurisdictions.

At the Indian Bank Level

• KYC verification by the remitting bank
• Authorised Dealer (AD) reporting obligations

Tax Compliance

• Tax Collected at Source (TCS) under the Income Tax Act
• Typically 20% on remittances above prescribed thresholds (excluding specified exemptions)

At the IFSC FME Level

Independently, the FME must comply with:

• KYC and AML requirements
• Suitability and client profiling obligations under IFSC regulations

In practice, the FME will:

• verify that funds were remitted under LRS
• confirm compliance with permissible purposes

However, LRS compliance remains the responsibility of the investor and the Indian bank—not the FME.

Round-Tripping Constraints and the Outbound-Only Design

Although Regulation 73(3) of the Fund Management Regulations appears broad, its practical application is significantly constrained.

The regulation permits investment in:

• IFSC securities
• Indian securities
• foreign securities

However, from a FEMA perspective, this flexibility is largely illusory for Indian-resident investors.

Textual Permissibility vs Practical Reality

At a textual level, the regulation suggests that a GIFT City PMS can invest in Indian securities.

However, in practical terms, the position differs materially.

For an Indian resident investing under LRS:

• Textual answer: Yes
• Regulatory reality: Effectively No

FEMA Round-Tripping Restriction

The LRS framework explicitly restricts the use of remitted funds.

Once funds leave India:

• they must remain deployed in offshore assets
• reinvestment into Indian securities creates a circular flow

This is commonly referred to as round-tripping.

Accordingly:

• remitting funds abroad
• and reinvesting them into Indian equities

would violate the underlying intent of FEMA regulations.

Structural Limits Under FEMA (Overseas Investment Rules, 2022)

Under Rule 19(3) of the Overseas Investment Rules, limited round-tripping structures may be permitted.

However, this exception is narrow.

Specifically:

• it applies to layered subsidiary structures
• it does not clearly accommodate single-client PMS accounts

As a result, a resident-funded PMS structure does not comfortably fit within this exception.

FPI Registration Barrier

In addition, investment into Indian listed securities by offshore entities generally requires:

Foreign Portfolio Investor (FPI) registration

However, GIFT City PMS structures present complications:

• they are not pooled vehicles
• each account is client-specific

Therefore:

• a single-client PMS cannot easily qualify under the FPI framework
• the structure raises regulatory concerns

Importantly, no clear regulatory guidance supports such usage.

Tax Consequences: No Structural Advantage

Even if such a structure were implemented, it would not yield tax benefits.

The IFSC tax holiday:

• does not apply to Indian-source income

Consequently:

• capital gains on Indian securities remain taxable in India
• taxation applies directly at the investor level

Thus, there is no tax efficiency advantage over domestic investment routes.

The Outbound-Only Conclusion 

Therefore, when analysed holistically, the regulatory framework leads to a clear conclusion.

Although Regulation 73(3) appears to permit investment in Indian securities, the combined effect of:

• FEMA round-tripping restrictions
• structural limitations under the FPI regime
• and the absence of tax advantages

makes such investments practically unworkable.

Accordingly, for Indian-resident investors using LRS, a GIFT City PMS operates as an outbound-only investment vehicle.

Final Strategic Positioning

In light of these constraints, the appropriate positioning becomes clear.

A GIFT City PMS should be structured as:

• a vehicle for offshore diversification
• a platform for accessing global markets
• a complement—not a substitute—for domestic portfolios

Therefore:

• Indian securities exposure should remain within SEBI-regulated domestic structures
• GIFT City PMS should focus exclusively on international assets

This approach is not only compliant but also aligned with its intended purpose.

Conclusion

The interaction between FEMA, LRS, FPI regulations, and Indian tax law creates a tightly controlled framework for outbound investment.

Within this system:

A GIFT City PMS is not designed to route Indian capital back into Indian markets.

Instead, its role is clearly defined:

• to enable compliant offshore investment
• to facilitate global portfolio diversification

Frequently Asked Questions (FAQs)

1. Can Indian residents invest in GIFT City PMS under LRS?

Yes. Indian residents can invest under the LRS framework, subject to the USD 250,000 annual limit and FEMA compliance.

2. Can LRS funds be used to invest in Indian stocks through GIFT City PMS?

No. Despite apparent regulatory flexibility, FEMA round-tripping restrictions effectively prohibit such structures.

3. What are FEMA round-tripping restrictions?

They prevent Indian residents from sending funds abroad and reinvesting them back into Indian securities, thereby avoiding circular capital flows.

4. What is the maximum investment allowed under LRS?

USD 250,000 per financial year per individual. However, portfolio value can exceed this over time.

5. Does GIFT City PMS provide tax benefits for Indian investments?

No. Indian-source income remains taxable under domestic tax laws.

6. Is FPI registration required?

Yes, for investing in Indian listed securities. However, this is not practical for single-client PMS structures.

7. What is the ideal use of GIFT City PMS?

It is best used for global diversification and offshore investment exposure.

8. Can GIFT City PMS invest in both Indian and foreign securities?

While theoretically possible, regulatory and tax constraints make it effectively outbound-only for Indian residents.

The post Can GIFT City PMS Invest in Indian Stocks? FEMA and LRS Rules Explained appeared first on Bhatt & Joshi Associates.

In Part 2, we examined the GIFT City PMS Regulations 2025 and the IFSCA framework governing discretionary portfolio management in the IFSC. Building on that regulatory foundation, this article turns to the next critical question—distribution.

A structural framework that permits a foreign investment adviser to hold a Registered FME licence in the IFSC and accept Indian residents as clients is only meaningful if there exists a lawful mechanism to reach those clients. In this context, GIFT City PMS distribution becomes the central operational question.

This article examines how a GIFT City FME may be distributed to Indian residents in the Domestic Tariff Area (DTA)—specifically, how clients are onboarded, how fees flow, and how the relationship is serviced over time.

For most of the period between 2015 and 2025, the answer to this question remained uncertain. The structural turning point came with the IFSCA informal guidance issued to LGT Wealth India on 20 August 2025.

The LGT Wealth India Precedent — IFSCA Informal Guidance (20 August 2025)

On 20 August 2025, IFSCA issued informal guidance to LGT Wealth India Private Limited, a SEBI-registered mainland entity, in relation to its proposed distribution of capital market products of IFSC-registered entities.

This guidance is arguably the single most important administrative precedent for any foreign investment adviser structuring a GIFT City PMS distribution strategy with Indian client access.

The Guidance

“It may be construed that LGT Wealth India Private Limited through its Head Office in Mumbai, may be eligible to distribute the permitted ‘capital market products and/or services’ issued by any Regulated Entities in the IFSC, subject to complying with the Code of Conduct specified in clause ‘F. Distributors’ under Part B of Schedule II of the IFSCA (Capital Market Intermediaries) Regulations, 2025.”

— IFSCA Informal Guidance to LGT Wealth India, 20 August 2025

What the Guidance Establishes

The guidance establishes that a SEBI-registered mainland entity may act as a Registered Distributor for products and services of an IFSCA-regulated entity. Specifically, it may:

• Actively solicit clients in the Domestic Tariff Area (DTA)
• Receive distribution commission from the IFSC issuer
• Perform these functions subject to compliance with the IFSCA Distributor Code of Conduct

The commercial consequence is decisive. The mainland distributor model eliminates dependence on reverse solicitation. Indian clients can now be actively solicited through a SEBI-supervised entity using standard domestic distribution channels.

The Fee Architecture

The fee structure under the mainland distributor model is structurally clean and regulatorily aligned:

• The IFSC FME charges management fees directly to the client under the portfolio management agreement (authorised under Regulation 77)
• The IFSC FME pays distribution commission to the mainland distributor, typically structured as a trail commission
• The client pays no separate fee to the mainland distributor

Importantly, Paragraph 10.1 of the IFSCA Master Circular expressly prohibits distributors from receiving consideration from the client (subject to limited carve-outs). Accordingly, commission flows from the FME—not the client.

The Structural Effect

The LGT Wealth India guidance transformed GIFT City PMS distribution from a system reliant on reverse solicitation into one permitting active solicitation through a regulated mainland channel.

This shift is what makes the two-entity architecture commercially viable.

The Mainland Distributor Model — Operational Framework

What the Mainland Distributor Must Be

The mainland distributor must be a SEBI-regulated entity. In the LGT case, the distributor was a SEBI-registered portfolio manager. However, other regulated formats may also qualify, including:

• Investment advisers
• AMC distributors
• Broker-dealers

In all cases, the entity must remain under SEBI supervision for its DTA activities.

IFSCA Distributor Code of Conduct Obligations

The mainland distributor operates under a dual compliance framework—SEBI (domestic conduct) and IFSCA (IFSC distribution). Accordingly, the following obligations apply:

• Disclosure: Commission structures, product nature, jurisdictional risks, and material disclosures must be clearly communicated
• Suitability: Product suitability must be assessed at onboarding and monitored continuously
• No client-side fees: As per the IFSCA Master Circular, distributors cannot charge clients directly (subject to limited exceptions)
• Conflict management: Conflicts arising from commission structures or affiliations must be disclosed and managed

The Onboarding Flow

A compliant onboarding process under GIFT City PMS distribution typically follows these steps:

1. The mainland distributor identifies and qualifies the prospective client in the DTA
2. Suitability assessment is conducted and documented
3. The client executes the portfolio management agreement directly with the IFSC FME
4. Funds are remitted under the Liberalised Remittance Scheme (LRS) from the client’s Indian bank account
5. The IFSC FME completes KYC and AML checks and activates the PMS account
6. The mainland distributor continues in a servicing role—handling communication, queries, and relationship management

Where the Distributor’s Role Ends

The mainland distributor’s role is limited to distribution and relationship management. It does not manage portfolios.

Portfolio management remains the exclusive function of the IFSC FME, carried out by IFSC-based Key Managerial Personnel in compliance with Regulation 7(7) and First Schedule requirements.

A distributor that crosses into portfolio management—by recommending specific securities or executing trades—risks triggering SEBI PMS registration requirements and full onshore regulatory exposure.

Reverse Solicitation — The Regulatory Void

Before the LGT Wealth India guidance, Indian client access was largely dependent on reverse solicitation.

Three Structural Limitations of Reverse Solicitation

• Definitional uncertainty: The boundary between solicitation and client initiation remains unclear under Indian law
• Fee flow restriction: Regulatory guidance limits the ability of Indian entities to receive compensation linked to offshore securities activity
• Fragility: The model depends on proving that no solicitation occurred—an inherently unstable evidentiary position

Reverse Solicitation After the LGT Guidance

The LGT guidance does not eliminate reverse solicitation. However, it provides a superior alternative.

A foreign adviser now has a choice:

• Continue with reverse solicitation (with legal and commercial constraints), or
• Adopt the mainland distributor model

For any firm seeking scale, the commercial case for the mainland distributor model is overwhelming.

Proactive Client Communication — Genuine Ambiguity

Despite regulatory clarity on distribution, one area remains unsettled: post-onboarding communication.

The Servicing vs Solicitation Line

Regulation 76 mandates periodic reporting. However, ambiguity remains regarding whether additional communication—such as calls, meetings, or proactive updates—constitutes servicing or solicitation.

Under the Distributor Model

Where onboarding occurs through a mainland distributor, subsequent communication by the IFSC FME is best characterised as servicing.

Accordingly, the following are generally consistent with Regulation 76:

• Quarterly performance calls
• Annual portfolio reviews
• Market updates and commentary

Under Reverse Solicitation — Higher Risk

Under reverse solicitation, proactive outreach carries higher regulatory risk. Therefore, the conservative approach is:

• Restrict communication to periodic written reports
• Respond to client-initiated queries only

Best Practice Pending Guidance

• Use written reports under Regulation 76(2) as the primary communication channel
• Maintain documentation distinguishing client-initiated and firm-initiated interactions
• Characterise communication as performance of contractual obligations—not marketing
• Avoid any outreach that could be construed as solicitation of new funds or clients
• Maintain internal compliance guidelines for IFSC-based personnel

Conclusion: The Viable Path Forward for GIFT City PMS Distribution

GIFT City PMS distribution has evolved from regulatory ambiguity to structural clarity. The LGT Wealth India guidance resolves the most critical barrier—the absence of a lawful distribution channel for Indian clients.

The mainland distributor model now represents the most robust and scalable framework. It aligns regulatory compliance with commercial practicality, allowing foreign advisers to build a sustainable Indian client base.

While limited ambiguities remain—particularly regarding post-onboarding communication—they are manageable through conservative compliance practices and, where necessary, targeted regulatory engagement.

For foreign advisers entering the Indian market through GIFT City, the conclusion is clear:

The two-entity architecture is not optional—it is the structurally sound pathway.

Frequently Asked Questions (FAQs)

What is GIFT City PMS distribution?

It is the regulated mechanism through which IFSC-based portfolio management services are offered to Indian residents via compliant distribution channels.

Can Indian residents invest in GIFT City PMS?

Yes. Investments are made under the Liberalised Remittance Scheme (LRS), subject to applicable limits.

What is the mainland distributor model?

It is a two-entity structure where a SEBI-regulated entity distributes IFSC-based PMS products while the IFSC FME manages portfolios.

Is reverse solicitation still relevant?

Yes, but it is commercially limited and legally fragile compared to the mainland distributor model.

Who pays the distributor?

The IFSC FME pays the distributor through commissions. The client does not pay separate distribution fees.

The post Can Foreign Advisers Solicit Indian Clients? GIFT City PMS Distribution Explained appeared first on Bhatt & Joshi Associates.

This article is a complete guide to the GIFT City PMS regulatory framework for foreign investment advisers seeking to offer discretionary portfolio management to Indian residents. If Part 1 of this series established that the onshore SEBI route is structurally foreclosed, this article sets out the framework that opens the remaining route. The IFSCA (Fund Management) Regulations, 2025 — consolidated and amended through 27 January 2026 — provide the complete legal architecture for establishing a GIFT City PMS operation and managing global securities for Indian residents through the GIFT City IFSC. Understanding how GIFT City portfolio management services work under this framework is essential for any foreign adviser targeting the Indian market.

IFSCA (Fund Management) Regulations, 2025 — Overview

The IFSCA (Fund Management) Regulations, 2025 were notified on 19 February 2025, amended through 30 July 2025, with a further amendment on 27 January 2026. The consolidated instrument is the complete framework for Fund Management Entities (FMEs) operating in the GIFT City IFSC.

What the Regulations are not:

• Not a liberalisation of the SEBI framework — SEBI continues to apply onshore
• Not a general green light for offshore investment advice to Indian residents — Indian residents may access the framework only within the LRS’s foreign-exchange limits
• Not a route around IFSCA’s own regulatory oversight — a branch FME is supervised by IFSCA with mandatory physical presence requirements

What they provide is a jurisdictionally distinct framework that permits activities which the SEBI framework prohibits, within a structure that imposes its own substance conditions.

GIFT City PMS Eligibility — FME Categories and Regulatory Requirements

The Fund Management Regulations recognise three FME categories, distinguished by permitted activities, minimum net worth, and key managerial personnel required.

The practical choice for a foreign investment adviser seeking to offer a GIFT City PMS to Indian residents is the Registered FME (Non-Retail) category. It permits PMS as an independent activity — no pooled fund scheme is required. Each client has a separate portfolio management agreement with a minimum investment of USD 75,000 (reduced from USD 150,000 in 2024, materially expanding the accessible investor base).

The GIFT City PMS Branch Structure — Regulation 5

The structural pivot that makes the IFSCA route work is the branch option under Regulation 5. A branch is permitted only for an entity already registered or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities. Eligible home regulators include the SEC (USA), FCA (UK), BaFin (Germany), Central Bank of Ireland, CSSF (Luxembourg), JFSA (Japan), ASIC (Australia), MAS (Singapore), and CMA (Saudi Arabia).

Regulation 5 — The Enabling Provision

“(1) The applicant shall be set up in IFSC in the form of a company or LLP or branch thereof or any other form as may be permitted by the Authority: Provided further that the branch structure is permitted only for a FME which is already registered or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities. (2) A FME operating in branch structure in an IFSC shall comply with the following conditions: (a) the parent entity shall adequately ring fence the operations of the branch in IFSC; (b) the parent entity shall maintain such minimum capital as may be specified by the Authority, which shall at all times be earmarked for its branch in IFSC…”

— IFSCA (Fund Management) Regulations, 2025, Regulation 5(1)–(2)

Why a Branch and Not a Subsidiary — The Critical Distinction

A branch is the same legal entity as the parent. Research, model portfolios, investment insights, and quantitative frameworks generated by the parent flow within a single legal entity — not as ‘outsourcing’ to a third party, and not as ‘advice of any other entity.’ This is the precise structural feature that makes GIFT City portfolio management services viable for foreign advisers and separates the IFSCA branch from the SEBI framework.

A subsidiary would reintroduce the same problem that exists onshore: the subsidiary, being a separate legal entity, would be receiving advice from the parent — another entity. The branch form avoids this because there is only one legal person operating in two jurisdictions.

For a Registered FME (Non-Retail), the USD 500,000 net worth requirement may be earmarked within the parent’s balance sheet — a negligible amount for any established foreign investment adviser. No separate capital injection into a distinct subsidiary is required (Regulation 8(2)).

Key Managerial Personnel and the Regulation 7(7) Substance Requirement

Regulation 7(7) — The Core Provision

“The proposal on the portfolio composition of a fund shall be initiated by a person who is based in the office of the FME in the IFSC.”

— IFSCA (Fund Management) Regulations, 2025, Regulation 7(7)

Portfolio composition proposals must originate from IFSC-based personnel. The critical question is what ‘initiation’ means — particularly for a branch FME receiving research and models from its foreign parent.

What Initiation Requires and What It Does Not Require

• Research, models, macroeconomic analysis, and quantitative frameworks may be generated at the parent level and flow to the IFSC branch as same-entity work product. These are inputs.
• The portfolio composition decision for each client — the decision to buy, sell, rebalance, or reallocate — must be initiated by the IFSC-based Principal Officer or KMP physically present in GIFT City. This is the decision.
• The IFSC KMP must exercise genuine independent judgment. Mechanical implementation of parent-generated model portfolios without independent review would convert the IFSC operation into a letterbox arrangement inconsistent with Regulation 7(7).
• Rationale for each portfolio decision must be documented contemporaneously. Documentation is the evidence that the decision was initiated locally and that genuine local discretion was exercised.

The Five-Function Mapping

First Schedule Declaration (f)

“We shall ensure that the key activities of Investment decision, portfolio management and grievance handling shall be undertaken from IFSC.”

— IFSCA (Fund Management) Regulations, 2025, First Schedule, Declaration (f)

This is a substantive commitment, not a formality. Investment decisions, portfolio management, and grievance handling for the IFSC branch’s clients must be undertaken from the IFSC.

Regulation 79(2) — Individual and Independent Management

“The FME in its capacity as a discretionary portfolio manager shall individually and independently manage the funds of the client in accordance with the needs of the client, in a manner which does not partake the character of a retail fund…”

— IFSCA (Fund Management) Regulations, 2025, Regulation 79(2)

The same ‘individually and independently’ language as SEBI Regulation 23(1) — but without the SEBI 2011 outsourcing Circular. In the branch context, the independent judgment is the judgment of the IFSC-based KMP, informed by but not delegated to the parent’s research and models.

GIFT City PMS Provisions — Regulations 73 to 81

Regulation 73(2)(d) — Eligible Clients

“An individual resident in India who is eligible under FEMA to invest funds offshore, to the extent allowed under the liberalised remittance scheme (LRS) of Reserve Bank of India.”

— IFSCA (Fund Management) Regulations, 2025, Regulation 73(2)(d)

An Indian resident individual may become a GIFT City PMS client of an IFSC FME to the extent permitted by the LRS. The current LRS limit is USD 250,000 per financial year per individual — the practical ceiling on new annual inflows from any single Indian resident investor.

Regulation 77(1) — Minimum Investment

The minimum per-client threshold for opening a portfolio management account is USD 75,000 — reduced from USD 150,000 in 2024, significantly expanding the accessible investor base for foreign firms offering global PMS mandates.

Regulation 73(3) — Investment Universe

“A FME operating as a portfolio manager in an IFSC shall be permitted to invest in securities and financial products in an IFSC, India or Foreign Jurisdiction. Provided that in case of a discretionary portfolio management service, it shall invest in the securities listed or to be listed or traded on the stock exchanges, money market instruments, units of investment schemes and other financial products as specified by the Authority from time to time.”

— IFSCA (Fund Management) Regulations, 2025, Regulation 73(3) and Proviso

The permissible investment universe for a GIFT City PMS is substantially broader than the SEBI PMS universe — encompassing securities and financial products across jurisdictions. For foreign advisers comparing onshore versus GIFT IFSC PMS structures, this global reach is one of the most significant structural advantages. The Proviso limits discretionary PMS to listed or to-be-listed securities, money market instruments, and IFSCA-specified products. This fully accommodates typical global equity strategies.

Regulation 76 — Periodic Reporting

The FME is obliged to furnish periodic reports to the portfolio management client. Regulation 76(2) permits the periodic report to be made available online. The servicing obligation under Regulation 76 is distinct from cross-border solicitation — a distinction addressed in Article 3 of this series.

Regulation 78(2) — Derivatives

For a discretionary GIFT City PMS, derivatives are permitted with client consent. The retail scheme restrictions on leverage under Regulation 49 do not apply to PMS separately managed accounts. A PMS mandate may therefore use derivatives for hedging, defensive positioning, or risk management.

Conculsion

The IFSCA (Fund Management) Regulations, 2025 provide a complete, workable framework for any foreign investment adviser seeking to offer a GIFT City PMS to Indian residents. The branch structure is the structural key — same legal entity as the parent, eliminating the outsourcing problem that forecloses the SEBI route. Regulation 7(7) requires genuine local initiation of portfolio decisions in GIFT City, not the physical location of research. The investment universe for a GIFT City PMS is global, the minimum investment threshold is USD 75,000, and the compliance architecture is well-defined. For foreign advisers evaluating discretionary PMS India entry strategies, the GIFT City IFSC route is the only legally viable and scalable option currently available. Part 3 of this series addresses how the GIFT City FME may lawfully reach Indian clients. Advisers seeking regulatory guidance on establishing a GIFT City PMS operation may contact Bhatt & Joshi Associates.

Frequently Asked Questions (FAQs) — GIFT City PMS & IFSCA Regulations

1. What is GIFT City PMS?

GIFT City PMS refers to discretionary portfolio management services offered from IFSC (GIFT City) under the IFSCA Fund Management Regulations, 2025, allowing investment in global securities.

2. Can Indian residents invest in GIFT City PMS?

Yes. Indian residents can invest under the Liberalised Remittance Scheme (LRS), subject to a limit of USD 250,000 per financial year.

3. What is the minimum investment for PMS in GIFT City?

The minimum investment is USD 75,000 per client, as per Regulation 77.

4. Why is the branch structure important in GIFT City?

Because a branch is the same legal entity as the parent, it avoids regulatory issues related to outsourcing and third-party advice under SEBI.

5. What does Regulation 7(7) require?

It requires that portfolio decisions be initiated by personnel physically present in IFSC, ensuring real substance and local decision-making.

6. Can research be conducted outside IFSC?

Yes. Research and models can be generated offshore, but final investment decisions must be taken in IFSC.

7. What is the investment scope under GIFT City PMS?

PMS can invest in global, Indian, and IFSC securities, including listed equities and financial instruments.

8. Are derivatives allowed in PMS?

Yes. Derivatives are permitted with client consent for hedging and risk management purposes.

The post GIFT City PMS Regulations: IFSCA Framework for Discretionary Portfolio Management appeared first on Bhatt & Joshi Associates.

Introduction

Can SEBI PMS invest in foreign securities? This question frequently arises in the context of global asset managers and Indian portfolio management firms attempting to extend cross-border investment strategies to Indian clients.

The answer is no.

However, this conclusion is often misunderstood because the SEBI (Portfolio Managers) Regulations, 2020 do not contain a single express provision prohibiting foreign securities. The restriction instead emerges from a combined and interdependent regulatory framework, supported by SEBI circulars, interpretative guidance, and enforcement practice.

Each component of this framework addresses a specific regulatory concern. When read together, they create what can only be described as a complete structural foreclosure of any onshore pathway to foreign investment through a SEBI PMS.

The Central Thesis: A System of Cumulative Restrictions

The prohibition is not rule-based—it is system-based.

Four independent constraints operate simultaneously:

• Independent portfolio management
• Restriction to Indian securities
• Prohibition on external investment advice
• Ban on delegation and outsourcing of core functions

Each of these eliminates a specific workaround:

• External strategy → blocked by independence
• Foreign advisory → blocked by Regulation 24(10)
• Direct investment → blocked by investment universe restriction
• Indirect structuring → blocked by anti-layering and outsourcing rules

Individually, these are limitations. Together, they form a complete regulatory lock.

This cumulative structure is the key to answering not only the direct question—can SEBI PMS invest in foreign securities—but also the broader question of whether such exposure can be achieved indirectly.

Independent Decision-Making: Regulation 23(1) as the First Barrier

Regulation 23(1) requires that a portfolio manager act “individually and independently” in managing client funds.

While often understood as a prohibition on pooling, its deeper function is to ensure decision-making autonomy. The PMS must originate its own investment decisions.

This has immediate consequences for cross-border models. In a typical global structure:

• strategy is developed centrally (often outside India), and
• local entities implement those strategies.

Under SEBI’s framework, such a model fails at the threshold. If investment decisions are effectively determined by a foreign parent or affiliate, the PMS is no longer acting independently.

This eliminates the possibility of importing global strategies into India.

Regulation 24(10): Absolute Prohibition on External Investment Advice

Regulation 24(10) reinforces and extends the independence requirement by prohibiting investment based on the advice of “any other entity.”

This provision is deliberately broad:

• It applies to both affiliated and non-affiliated entities
• It covers formal advisory as well as informal research inputs
• It focuses on substance, not contractual characterization

The effect is decisive. Even if a PMS is formally independent, it cannot:

• rely on foreign research that drives decisions,
• implement model portfolios developed overseas, or
• align portfolios with global advisory inputs.

When read with Regulation 23(1), this provision ensures that decision-making must not only be independent in form, but also in substance.

Regulation 24(3): The Investment Universe as a Jurisdictional Boundary

Even if independence and advisory restrictions did not exist, the investment universe itself imposes a separate and conclusive limitation.

Regulation 24(3) confines PMS investments to:

• securities listed or traded on recognized Indian stock exchanges,
• money market instruments, and
• other domestic financial instruments.

Foreign securities—whether equities, ETFs, or bonds—fall entirely outside this framework.

This is not a compliance condition but a jurisdictional boundary. The PMS framework is designed for domestic portfolio management, and the permissible assets reflect that design.

This provision independently answers the question: direct investment in foreign securities is not permitted.

Regulation 24(9): Elimination of Indirect and Layered Structures

A natural workaround would be to seek indirect exposure—for example, by routing investments through another entity.

Regulation 24(9) prevents this by prohibiting:

• investment through another portfolio manager, and
• layered or “manager-of-managers” structures.

This ensures that a PMS cannot achieve indirectly what it cannot do directly.

When read with Regulation 24(3), this provision eliminates both:

• direct foreign investment, and
• indirect access through intermediated structures.

SEBI Outsourcing Circular: Closing the Intra-Group Route

Even with the above restrictions, one potential pathway remains—internal group arrangements.

The SEBI Outsourcing Circular closes this gap.

First, it clarifies that outsourcing includes arrangements with:

• third parties outside the group, and
• entities within the same corporate group.

Second, it prohibits outsourcing of core activities, including:

• investment decision-making,
• portfolio construction, and
• research that influences investment decisions.

This has a critical consequence. A PMS cannot rely on:

• foreign parent research,
• centralized global strategy teams, or
• affiliate advisory inputs,

even if these are internal to the organization.

When read with Regulation 24(10), the circular ensures that external advice cannot be recharacterized as internal support.

ASK Wealth Advisors (2021): Rejection of the “Unlisted Securities” Route

The only remaining textual argument attempted in practice was to classify offshore securities as “unlisted securities,” thereby bringing them within permissible allocation limits.

SEBI rejected this interpretation in its informal guidance to ASK Wealth Advisors.

It clarified that:

• the PMS regulatory framework does not envisage investment in offshore securities, and
• the concept of “securities” in this context is tied to the Indian regulatory regime.

This closes the final interpretative gap.

Enforcement Practice: Confirming the Structural Design

SEBI’s enforcement record confirms that this framework is not merely theoretical.

Key enforcement principles include:

• Substance over form: the real nature of activity prevails over contractual structuring
• Strict view on delegation: even permissive clauses can trigger violations
• Functional approach: splitting advisory and execution does not avoid regulation

These principles ensure that:

• no contractual workaround is viable,
• no structural workaround is effective, and
• no labeling strategy can bypass the framework.

Enforcement does not extend the law—it confirms its structural intent.

Why All Onshore Models Fail

When the regulatory provisions, circulars, and enforcement practices are read together, the conclusion becomes inescapable.

A structure in which:

• a foreign entity provides strategy, and
• an Indian PMS executes it,

fails simultaneously on multiple grounds:

• lack of independent decision-making,
• reliance on external advice, and
• outsourcing of core functions.

This answers the broader question conclusively:

Can SEBI PMS invest in foreign securities through indirect, structured, or intra-group arrangements? → No.

Conclusion: A Complete Regulatory Lock

The answer to the central question—can SEBI PMS invest in foreign securities—is unequivocally no.

This conclusion arises from a coherent and cumulative regulatory system in which:

• Regulation 23(1) ensures independent decision-making
• Regulation 24(10) prohibits external advisory inputs
• Regulation 24(3) restricts the investment universe to Indian securities
• Regulation 24(9) eliminates indirect structures
• The Outsourcing Circular prevents intra-group delegation
• ASK guidance closes interpretative loopholes
• Enforcement practice confirms strict application

Each rule eliminates one pathway. Together, they eliminate all.

This is not a gap in the law—it is its intended outcome.

FAQs: SEBI PMS and Foreign Investment

Can SEBI PMS invest in foreign securities?
No. The combined regulatory framework prevents both direct and indirect investment in foreign securities.

Can SEBI PMS invest in US stocks or global ETFs?
No. These instruments fall outside the permissible investment universe.

Can foreign parent companies provide research to PMS?
No. This would violate both Regulation 24(10) and the outsourcing framework.

Is indirect exposure through structuring possible?
No. Anti-layering and outsourcing rules eliminate indirect routes.

Why is the prohibition so strict?
Because the framework is designed to ensure independent, domestically regulated portfolio management.

The post Can SEBI PMS Invest in Foreign Securities in India? Offshore Investment Rules Explained (2026) appeared first on Bhatt & Joshi Associates.

The Gujarat International Finance Tec-City, commonly known as GIFT City, represents India’s ambitious stride toward establishing itself as a global financial hub. Located in Gandhinagar, Gujarat, GIFT City houses India’s first International Financial Services Centre and operates under a specialized regulatory framework designed to attract multinational corporations and facilitate international financial transactions. At the heart of this ecosystem lies the Global and Regional Corporate Treasury Centre framework, which enables corporations to centralize their treasury operations in a tax-efficient, well-regulated environment. The GRCTC framework has emerged as a strategic tool for multinational corporations seeking to optimize their global treasury functions while benefiting from India’s cost advantages and strategic geographic location.

Understanding the Legal Framework Governing GIFT City

The legal architecture supporting GIFT City’s operations rests on multiple legislative pillars that create a unique regulatory environment. The International Financial Services Centres Authority Act, 2019 [1] established the International Financial Services Centres Authority as the unified regulator for all financial services in International Financial Services Centres across India. This legislation consolidated regulatory powers that were previously distributed among various domestic regulators including the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, and Pension Fund Regulatory and Development Authority.

The IFSCA Act grants the Authority comprehensive powers under Section 12 and Section 13 to develop and regulate financial products, financial services, and financial institutions within IFSCs. These provisions empower IFSCA to create tailored regulatory frameworks that align with international best practices while maintaining appropriate oversight. The establishment of IFSCA as a unified regulator addresses the fundamental challenge of coordinating multiple regulatory authorities, thereby creating a streamlined approval process through a single-window mechanism.

The Special Economic Zones Act, 2005 provides another critical legislative foundation for GIFT City’s operations. Section 18(1) of the SEZ Act specifically empowers the Central Government to establish International Financial Services Centres within designated Special Economic Zones [2]. This provision creates a legal sandbox where both foreign and domestic financial entities can operate under internationally competitive regulatory norms while enjoying certain relaxations compared to the mainstream domestic market. The SEZ framework provides GIFT City with its special status, enabling it to offer duty exemptions, tax holidays, and simplified compliance procedures that make it attractive for global financial operations.

The GRCTC Framework: Regulatory Evolution and Current Structure

The journey toward establishing a robust framework for Global and Regional Corporate Treasury Centres in GIFT City began with the International Financial Services Centres Authority (Finance Company) Regulations, 2021. These regulations, notified on March 25, 2021, established the foundational structure enabling Finance Companies and Finance Units to undertake various permissible activities within IFSCs, including the operation of GRCTCs. The regulations were enacted under the authority vested in IFSCA through Section 28(1) read with Section 12(1) and Section 13(1) of the IFSCA Act, 2019.

Following extensive stakeholder consultation, IFSCA issued the original Framework for undertaking Global/Regional Corporate Treasury Centres Activities by Finance Company/Finance Unit in IFSC on June 25, 2021 [3]. This initial framework outlined the basic requirements for setting up treasury centers and the permissible activities they could undertake. However, as market participants gained experience with the framework and global best practices evolved, the need for revision became apparent.

In September 2024, IFSCA released a consultation paper seeking public feedback on proposed revisions to the GRCTC framework [4]. This consultative approach reflected the Authority’s commitment to creating regulations that genuinely serve market needs while maintaining appropriate oversight. The consultation period extended until October 2, 2024, during which stakeholders provided valuable insights on operational challenges and areas requiring clarification.

The culmination of this consultative process was the issuance of the revised Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres on April 4, 2025, through Circular F. No. IFSCA/24/2024-Banking-FC/01 [5]. This updated framework superseded the 2021 circular and introduced significant enhancements aimed at promoting ease of doing business and aligning with international best practices. The revised framework became effective immediately upon issuance, though existing GRCTCs were granted a six-month transition period to comply with additional requirements.

Registration Requirements and Eligibility Criteria Under the GRCTC Framework

The revised GRCTC framework establishes clear eligibility conditions that applicants must satisfy before obtaining registration as a Finance Company or Finance Unit authorized to undertake treasury center activities. These requirements are designed to ensure that only credible entities with adequate resources and governance structures operate within the IFSC ecosystem.

An entity seeking to establish a GRCTC must apply for registration under sub-regulation (4) of regulation 3 of the FC Regulations through the Single Window IT System at https://swit.ifsca.gov.in/. The application process requires the entity to demonstrate possession of or commitment to establish necessary infrastructure in IFSC, including adequate office space, equipment, and communication facilities suitable for undertaking permissible activities.

One of the most significant additions in the revised framework is the mandatory substance requirement. Applicants must undertake to employ at least five qualified personnel based in IFSC to undertake permissible activities, including the Head of Treasury and the Compliance Officer, before commencing operations [5]. This requirement represents a departure from the erstwhile framework, which had no specific mention of minimum personnel requirements for GRCTCs beyond those applicable to finance companies generally. This change ensures that GRCTCs maintain genuine operational presence in GIFT City rather than serving as mere shell entities.

The framework mandates minimum owned fund requirements of USD 0.2 million, which must be maintained at all times. For Finance Units operating as branches, this requirement may be satisfied by maintaining the requisite owned fund at the parent level. The concept of “Owned Fund” is precisely defined as paid-up capital and free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets, excluding reserves created by revaluation of assets, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure.

Jurisdictional requirements ensure that the parent entity of the applicant must not be from a jurisdiction identified in the public statement of Financial Action Task Force as “High Risk Jurisdiction – subject to call for action.” This provision safeguards the integrity of the IFSC ecosystem by preventing entities from high-risk jurisdictions from establishing operations in GIFT City.

Permissible Activities and Operational Flexibility

The GRCTC framework delineates a wide array of permissible activities that registered entities may undertake, providing significant operational flexibility while maintaining regulatory oversight. These activities encompass the full spectrum of treasury functions that multinational corporations require for effective financial management across jurisdictions.

Capital raising activities are permitted through issuance of equity shares, enabling GRCTCs to maintain appropriate capitalization levels. Borrowing activities, including inter-company deposits, allow GRCTCs to access funding from group entities on terms determined either independently or in consultation with service recipients. Credit arrangements encompass lending activities by whatever name called, provision of credit guarantees, performance bonds, and any other credit facilities that service recipients may require.

The framework permits GRCTCs to transact or invest in financial instruments issued both within and outside IFSC. The term “financial instruments” carries the meaning assigned under Indian Accounting Standard 32, providing clarity on the scope of permissible investments. This broad definition enables GRCTCs to maintain diversified portfolios aligned with their treasury objectives.

Derivative transactions represent a crucial component of treasury operations, and the framework provides detailed guidelines for such activities. GRCTCs may undertake over-the-counter derivative transactions permitted in IFSC with counterparties within and outside IFSC. They may also undertake OTC derivative transactions not permitted in IFSC with counterparties outside IFSC, and exchange-traded derivative transactions on exchanges both within and outside IFSC [5]. All derivative transactions must be undertaken in compliance with a board-approved policy, ensuring appropriate governance and risk management.

Foreign exchange transactions constitute another core treasury function, with the framework permitting transactions in currencies specified by the Authority. The revised framework introduced significant flexibility by allowing operations in any of the Specified Foreign Currencies within IFSC, while permitting transactions outside IFSC in currencies other than Specified Foreign Currencies. Additionally, GRCTCs may now open Special Non-resident Rupee accounts under Schedule 4 of the Foreign Exchange Management (Deposit) Regulations, 2016, with an authorized dealer in India outside IFSC for business-related transactions.

Factoring and forfaiting activities are permitted, though entities must obtain separate registration under the IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024. Importantly, GRCTCs undertaking factoring activities are exempt from paying separate registration and recurring fees for this activity, reducing the compliance burden.

The revised framework explicitly permits GRCTCs to act as re-invoicing centers, addressing a long-standing area of ambiguity. A GRCTC may now facilitate financing the purchase and sale of goods on behalf of service recipients under a Bill-to-Ship-to model, provided the GRCTC does not take physical possession of such goods and one of the parties to each re-invoicing transaction is a service recipient [5]. This clarification enables effective foreign exchange control and liquidity centralization for trading multinationals.

Liquidity management activities encompass pooling of funds, optimizing cash flows, interest payments, working capital and tax payments through netting and cash concentration, confirmation and reconciliation of receipts, processing payments to vendors or suppliers, negotiating payment terms, consolidating and managing payments across the group, managing liquidity and investing surplus funds, and developing pooling mechanisms. For pooling transactions, the header or master account must be maintained with an International Banking Unit or International Banking Centre.

Additional permissible activities include maintaining relationships with financial counterparties such as banks, credit rating agencies, and other financial institutions, managing obligations toward insurance and pension-related commitments, providing advisory services related to financial management and capital market activities, and acting as a holding company for group entities.

Service Recipients and Group Structure Flexibility

The revised GRCTC framework introduces enhanced flexibility regarding service recipients while maintaining appropriate safeguards. A Finance Company or Finance Unit undertaking GRCTC activities may provide services to its Group Entities, Group Entities of its Parent, and branches of such Parent or Group Entities. These Service Recipients may be either persons resident in India or persons resident outside India within the meaning of the Foreign Exchange Management Act, 1999.

The definition of “Group Entities” under the framework is deliberately broad, encompassing arrangements involving entities related through subsidiary-parent relationships as defined in Ind-AS 110 or Accounting Standard 21, joint ventures as defined in Ind-AS 28 or Accounting Standard 27, associates as defined in Ind-AS 28 or Accounting Standard 23, related parties as defined in Ind-AS 24 or Accounting Standard 18, common brand name, or investment in equity shares of twenty percent and above.

This expansive definition enables GRCTCs to serve complex multinational structures effectively. However, the framework imposes certain safeguards to ensure legitimacy. Service Recipients must be registered under applicable law with competent or statutory bodies in their home jurisdictions. GRCTCs must maintain an updated list of Service Recipients and provide such list to IFSCA when called for, ensuring regulatory visibility into the entities being serviced.

Where GRCTCs undertake permissible activities with Service Recipients who are persons resident in India, they must comply with provisions of the Foreign Exchange Management Act, 1999, as applicable. This requirement ensures that cross-border transactions involving Indian residents adhere to foreign exchange regulations, preventing circumvention of FEMA provisions through IFSC structures.

Governance and Compliance Requirements

The GRCTC framework establishes rigorous governance standards ensuring that treasury centers operate with appropriate oversight and risk management mechanisms. These requirements reflect the Authority’s commitment to maintaining high operational standards while avoiding unnecessary regulatory burden.

Every GRCTC must maintain a board-approved corporate governance policy that comprehensively and clearly documents its governance arrangements, including the framework under which its board and senior management function. This policy must address the specific governance challenges associated with treasury operations, which often involve complex financial instruments and cross-border transactions.

Risk management receives particular emphasis in the governance requirements. GRCTCs must maintain a board-approved risk management policy that includes procedures and systems to identify, measure, monitor, and manage the range of risks to which the GRCTC is exposed [5]. Given that treasury operations inherently involve various financial risks including interest rate risk, foreign exchange risk, credit risk, and liquidity risk, this requirement ensures that adequate risk mitigation frameworks are in place.

A board-approved policy for undertaking permissible activities must address the approval process including delegation of powers, financial limits for undertaking permissible activities, procedures for oversight and audit, and any other relevant control mechanisms based on the nature of activities undertaken. This policy ensures that permissible activities are conducted within appropriate parameters and subject to proper authorization.

All governance policies must be periodically reviewed by the board, ensuring they remain relevant as business conditions and regulatory expectations evolve. This requirement prevents governance frameworks from becoming outdated or disconnected from operational realities.

The framework addresses corporate actions that could fundamentally alter a GRCTC’s ownership or control structure. Any mergers, acquisitions, takeovers, or changes in management resulting in change of control of at least twenty percent of total share capital or authority to take business decisions under an agreement require prior approval from IFSCA [5]. For Finance Units, changes in the parent’s ownership structure must comply with registration conditions and be intimated to IFSCA within fifteen days.

GRCTCs must adhere to the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022, as amended, and related circulars. However, certain exemptions may apply based on the nature of activities and counterparties, as outlined in relevant IFSCA circulars.

Tax Framework and Incentives

The tax regime applicable to GIFT City entities constitutes one of the most compelling reasons for establishing operations in the IFSC. Section 80LA of the Income Tax Act, 1961, as amended by the Finance Act, 2023, provides the cornerstone of tax benefits available to IFSC units [6].

Under Section 80LA(1A), units of an International Financial Services Centre are eligible for a deduction of one hundred percent of total income for any ten consecutive assessment years, at the option of the assessee, out of fifteen years. The computation of these fifteen years commences from the assessment year relevant to the previous year in which registration under the International Financial Services Centres Authority Act, 2019, was obtained. This deduction applies to income arising from business for which the unit has been approved for setting up in the IFSC within a Special Economic Zone.

The benefit of Section 80LA is not limited to offshore banking units but extends to all eligible IFSC units, including GRCTCs. This provision effectively creates a decade-long tax holiday for qualifying income, significantly reducing the effective tax burden and enhancing returns on treasury operations. Following the ten-year period of complete exemption, units can benefit from reduced tax rates compared to standard corporate tax rates.

The Finance Act, 2023, introduced additional tax benefits specifically relevant to treasury and financial operations. Section 10(4F) exempts income of non-residents by way of royalty on account of lease of aircraft paid by IFSC units eligible for deduction under Section 80LA. Section 10(4G) exempts income received by non-residents from portfolios of securities or financial products managed by portfolio managers in accounts maintained with Offshore Banking Units in IFSCs, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Section 10(4H) provides exemption for capital gains arising from transfer of equity shares of domestic companies engaged primarily in aircraft leasing business, where both the transferor and transferee are IFSC units [7]. These provisions complement the GRCTC framework by creating a favorable tax environment for various treasury activities.

Notification No. 67/2025 dated June 20, 2025, further enhanced the tax efficiency of IFSC operations by prescribing zero tax deduction at source on certain payments made to IFSC units eligible for deduction under Section 80LA [8]. This notification eliminates the cash flow burden associated with tax withholding and subsequent refund processes, effective from July 1, 2025.

Beyond income tax benefits, GIFT City entities enjoy exemption from Securities Transaction Tax, Commodity Transaction Tax, and stamp duty on transactions conducted on IFSC exchanges. The GST framework applicable to IFSC units treats them as operating in a non-taxable territory for certain transactions, creating additional cost advantages.

Regulatory Oversight and Fit and Proper Criteria

The GRCTC framework incorporates stringent fit and proper criteria ensuring that entities and individuals involved in treasury center operations meet high standards of integrity and competence. These criteria apply to Relevant Persons, defined as the applicant entity, its Key Managerial Personnel, and persons exercising control over it.

The fit and proper assessment encompasses multiple dimensions. Regulatory history is scrutinized, with applicants required to disclose whether any relevant person or entities associated with them have been refused registration, authorization, or license by IFSCA or any other regulatory authority, or had such registration suspended. Default history must be disclosed, including whether relevant persons or associated entities are in default or have defaulted in respect of credit facilities obtained from any entity or bank.

Disqualifications under corporate law are examined, with disclosure required if any relevant person has been disqualified from acting as promoter, director, or key managerial personnel under any law in any jurisdiction where the applicant or its group entities operate. Substantial interests in other companies must be disclosed to identify potential conflicts of interest or concentration of control.

Investigative and disciplinary matters receive careful attention. Applicants must disclose whether they or relevant persons are undergoing or involved in any investigation, disciplinary action, legal or regulatory violations, or criminal cases by law enforcement or regulatory agencies. Orders passed by bankruptcy or resolution authorities against companies or entities with which relevant persons are associated must be disclosed.

Criminal convictions for offences involving moral turpitude, economic offences, or offences against securities laws result in disqualification. Pending recovery proceedings initiated by financial regulatory authorities, winding-up orders for malfeasance, orders restraining or prohibiting dealing in financial products or services, and other regulatory orders within the past five years all factor into the fit and proper assessment.

Insolvency, unsound mind declarations, classification as willful defaulter, designation as fugitive economic offender, and financial unsoundness all constitute grounds for potential disqualification. Applicants must undertake to notify IFSCA immediately of any material change in information provided, including proceedings, charges, or investigations initiated against the applicant or relevant persons.

Fee Structure and Financial Implications

The GRCTC framework establishes a straightforward fee structure designed to cover regulatory costs while remaining competitive with other international financial centers. The fee structure comprises three components: an application fee, registration fee, and recurring fee.

The application fee stands at USD 1,000 and is non-refundable, payable at the time of submission of the registration application. This fee covers the administrative costs of processing applications and conducting preliminary assessments. The registration fee of USD 12,500 is a one-time charge payable upon grant of Certificate of Registration, covering the regulatory costs associated with bringing a new entity into the IFSC ecosystem [5].

The recurring fee is set at USD 25,000 per annum, payable for ongoing supervision and regulatory oversight. For existing Finance Companies or Finance Units already undertaking GRCTC activities, the revised fee structure became applicable from the beginning of financial year 2025-26, providing a clear transition timeline.

An important exemption applies to GRCTCs also engaging in factoring activities. Where a Finance Company or Finance Unit granted registration for GRCTC activities subsequently applies for registration under the IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024, it is not required to pay separate registration and recurring fees for factoring activities. This exemption recognizes that factoring represents a permissible activity within the GRCTC framework and avoids duplicative fee obligations.

The fee structure must be viewed in context of the minimum owned fund requirement of USD 0.2 million and the potential tax benefits available under Section 80LA. For entities with significant treasury operations spanning multiple jurisdictions and involving substantial transaction volumes, these fees represent a modest regulatory cost relative to the operational efficiencies and tax savings achievable through the GIFT City platform.

Comparative Advantages and Global Positioning

GIFT City’s GRCTC framework positions India to compete with established treasury center hubs including Singapore, Hong Kong, Dubai, and European financial centers. Several factors contribute to GIFT City’s competitive positioning. Cost effectiveness stands out prominently, with operational and setup costs significantly lower than in traditional financial hubs while maintaining comparable regulatory standards and infrastructure quality.

The skilled workforce available in India, particularly in financial services and technology domains, provides GRCTC operations access to talent at competitive compensation levels. India’s geographic location offers timezone advantages, enabling operations to cover both Asian and European trading hours effectively. The strategic position provides access to rapidly growing Asian, Middle Eastern, and African markets.

Regulatory alignment with international standards, combined with a unified regulatory authority in IFSCA, creates a business-friendly environment with streamlined approvals and reduced compliance complexity. The tax incentives under Section 80LA and related provisions provide substantial cost advantages, particularly during the initial ten-year period of complete income tax exemption.

Infrastructure development in GIFT City has accelerated, with world-class office facilities, technology infrastructure, and supporting ecosystem participants including banks, insurance companies, fund managers, and market intermediaries establishing presence. The growing ecosystem creates network effects, as the presence of multiple financial institutions enhances the value proposition for new entrants.

However, GIFT City faces certain challenges in competing with established hubs. The ecosystem is still maturing, with liquidity and market depth in certain instruments not yet matching that of established centers. Perception challenges persist, as some international corporations remain more familiar and comfortable with traditional hubs. Regulatory interpretations continue to evolve as IFSCA gains experience, creating some degree of uncertainty compared to well-established regulatory frameworks in mature jurisdictions.

Recent Developments and Future Outlook

The GRCTC framework continues to evolve based on market feedback and emerging best practices. The June 9, 2025 amendment to the GRCTC Framework introduced under Circular No. F. No. IFSCA/24/2024-Banking-FC/02 added a new provision under Clause 3(2)(ii) allowing the Chairperson of IFSCA to grant temporary relaxation from specific conditions in the GRCTC Framework [9]. This provision enhances regulatory flexibility to address genuine hardship cases while maintaining overall framework integrity.

Industry stakeholders have advocated for further clarifications on certain aspects of the framework. Commodity hedging guidelines, particularly for exchange-traded contracts, remain an area where comprehensive guidance would be beneficial. Transfer pricing provisions applicable to inter-unit transactions between GIFT City units and their parents or group entities require further clarification, particularly regarding the applicability of Section 92BA of the Income Tax Act to specified domestic transactions.

The regulatory convergence challenge persists, as GRCTC operations intersect with multiple regulatory domains including RBI regulations governing foreign exchange transactions, SEBI regulations applicable to capital markets activities, corporate law under the Companies Act, 2013, and tax regulations under the Income Tax Act. Ensuring seamless coordination among these regulatory frameworks remains an ongoing priority.

Looking forward, GIFT City’s GRCTC framework holds significant promise for establishing India as a preferred destination for global treasury operations. The government’s commitment to developing the IFSC ecosystem, combined with IFSCA’s responsive regulatory approach, creates a favorable environment for growth. The increasing number of multinational corporations evaluating GIFT City for treasury operations suggests growing market acceptance.

Conclusion

The Global and Regional Corporate Treasury Centre (GRCTC) framework represents a critical component of India’s strategy to position GIFT City as a competitive international financial services center. Through careful regulatory design, attractive tax incentives, and operational flexibility, the framework provides multinational corporations with a compelling value proposition for centralizing treasury functions in India.

The legal foundations established through the IFSCA Act, 2019, the SEZ Act, 2005, and supporting regulations create a robust framework balancing regulatory oversight with ease of doing business. The revised GRCTC framework effective from April 4, 2025, incorporates lessons learned from initial implementation and stakeholder feedback, introducing enhancements around substance requirements, operational flexibility, and regulatory clarity.

Tax benefits under Section 80LA of the Income Tax Act, 1961, provide substantial financial incentives, effectively creating a decade-long tax holiday for qualifying income. Combined with exemptions from securities transaction tax, commodity transaction tax, and beneficial GST treatment, the tax framework significantly enhances the economics of operating treasury centers from GIFT City.

Governance and compliance requirements ensure that GRCTCs maintain high operational standards, with board-approved policies for corporate governance, risk management, and permissible activities. Fit and proper criteria applicable to entities and individuals ensure integrity within the ecosystem.

As GIFT City’s ecosystem continues to mature, with growing participation from global financial institutions, fund managers, and market intermediaries, the network effects will strengthen the value proposition. While challenges remain in competing with established treasury center hubs, the combination of cost advantages, regulatory support, tax incentives, and access to skilled talent positions GIFT City favorably for future growth.

The GRCTC framework demonstrates how thoughtful regulatory design, informed by international best practices and responsive to market needs, can create competitive advantages for emerging financial centers. As India continues its economic ascent and integration with global financial markets, GIFT City’s role as a hub for centralized treasury functions is poised to expand, contributing to the broader objective of establishing India as a significant player in international finance.

References

[1] International Financial Services Centres Authority Act, 2019 (Act No. 50 of 2019). Available at: https://ifsca.gov.in/Legal/Index/sKCVtbX6J9o= 

[2] ATB Legal. (2025). GIFT City and IFSC in India: A Detailed Legal Perspective. Available at: https://atblegal.com/blog/business-legal-structures-in-india/ifsc-in-india/ 

[3] IFSCA Circular dated June 25, 2021. Framework for undertaking Global/Regional Corporate Treasury Centres Activities by Finance Company/Finance Unit in IFSC. Available at: https://ifsca.gov.in/Document/Legal/circular_global-regional-corporate-treasury-centre_june-25-202125062021034458.pdf 

[4] IFSCA Consultation Paper dated September 12, 2024. Draft Public Consultation on GRCTC Framework Revision. Available at: https://www.ifsca.gov.in/Document/ReportandPublication/draft-public-consultation-on-grctc-framework-revision-12-09-202412092024065814.pdf 

[5] IFSCA Circular F. No. IFSCA/24/2024-Banking-FC/01 dated April 4, 2025. Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres. Available at: https://ifsca.gov.in/Document/Legal/01-framework-for-grctc_updated04042025061059.pdf 

[6] Section 80LA, Income Tax Act, 1961. IndiaFilings. (2025). Section 80LA Deduction – Income Tax Act. Available at: https://www.indiafilings.com/learn/section-80la-deduction/ 

[7] Finance Act, 2023. Explanatory Notes to the Provisions of the Finance Act, 2023. Available at: https://www.voiceofca.in/siteadmin/document/CBDTreleasesexplanatorynotespertainingtoprovisionsoftheFinanceAct2023.pdf 

[8] GIFT CFO. (2025). TDS Exemption for GIFT City Units from July 1, 2025. Available at: https://www.giftcfo.com/post/tds-exemption-for-gift-city-units-from-july-1-2025-big-boost-for-ifsc-businesses 

[9] Sarthak Law. (2025). GIFT City – Amendment to the ‘Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres’. Available at: https://sarthaklaw.com/gift-city-amendment-to-the-framework-for-finance-company-finance-unit-undertaking-the-activity-of-global-regional-corporate-treasury-centres/ 

The post GRCTC Framework: Gujarat IFSC GIFT City Treasury Operations Hub appeared first on Bhatt & Joshi Associates.

Introduction

The traditional route for Indian companies to access overseas markets involved the use of depository receipts, such as American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). However, recent regulatory changes have paved the way for Indian companies to directly list their shares on overseas markets, particularly through the International Financial Services Centre (IFSC) a This article explores the implications of this significant development for Indian businesses.

Regulatory Provisions for Direct Listing of Indian Companies

The Companies (Amendment) Act, 2020 introduced provisions allowing for the direct listing of specified securities on permitted stock exchanges in foreign jurisdictions. These amendments, effective from October 30, 2023, were followed by the notification of the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 (LEAP Rules) by the Ministry of Corporate Affairs (MCA) on January 24, 2024. Additionally, the Ministry of Finance amended the FEMA (Non-Debt Instruments) Rules, 2019, to accommodate the listing of shares abroad, effective from January 24, 2024.

Modes of Listing

Companies can opt to raise funds through fresh capital issuance or by offering existing shares for listing. Both methods are permissible under the LEAP Rules and NDI Rules. However, certain sectors are barred from raising foreign funds, and compliance with sectoral caps outlined in Schedule I to the NDI Rules is mandatory.

Eligibility Criteria for Direct Listing of Indian Companies

The LEAP Rules specify criteria for eligibility, excluding companies registered under section 8 or declared as Nidhi companies, those with negative net worth, or those in default with financial obligations. Similarly, the NDI Rules outline conditions for both unlisted and listed companies, focusing on factors such as regulatory compliance, default history, and ongoing investigations.

Permissible Holders and Investment Limits

Non-resident Indians and foreign entities are permitted to hold equity shares listed on permissible stock exchanges. However, individuals or entities from countries sharing a land border with India require Central Government approval. Permissible holders are subject to investment limits prescribed for foreign portfolio investors, ensuring regulatory compliance.

Sectoral Caps on Foreign Funds

The NDI Rules define sectoral caps dictating the maximum permissible foreign investment in specific sectors. Compliance with these caps is crucial for companies listing on permitted stock exchanges, as funds raised through IFSC listings contribute to overall foreign investment.

Pricing of Equity Shares

While the LEAP Rules do not specify pricing conditions, the pricing of equity shares listed on permitted stock exchanges must adhere to guidelines outlined in the Foreign Exchange Management Act, 1999. Pricing mechanisms vary depending on whether shares are issued by listed companies or offered by existing shareholders.

Compliance and Post-Listing Obligations

Unlisted public companies intending to list their equity shares on IFSC stock exchanges must file a prospectus with the Registrar of Companies (ROC) within seven days of finalization. Post-listing, companies must adhere to IFSC Regulations governing listing obligations and disclosure requirements, ensuring transparency and accountability.

Tax Incentives for Permissible Holders in Direct Listing

GIFT-IFSC offers a tax-neutral environment aimed at attracting global investors. Section 47(viiab) of the Income-tax Act, coupled with relevant notifications, exempts certain capital asset transfers on recognized stock exchanges within IFSC from taxation, provided consideration is paid in foreign currency.

Status After Listing 

Despite listing on IFSC stock exchanges, companies do not attain the status of listed entities recognized by Indian regulatory bodies. However, they must comply with IFSC Regulations, particularly Chapter XI, pertaining to listing obligations and disclosure requirements.

Conclusion: Direct Listing Opens Global Growth Opportunities

The decision to permit direct listing of Indian company shares on overseas markets through IFSC GIFT City marks a significant milestone in India’s capital markets. This initiative holds immense potential to facilitate international expansion and enhance visibility for Indian businesses. However, addressing concerns related to eligibility criteria and post-listing obligations will be crucial to realizing the full benefits of this regulatory change. Overall, the move underscores India’s commitment to fostering a conducive environment for global capital flows and business growth.

The post Direct Listing of Indian Companies Shares Overseas through IFSC GIFT City: A Game-Changer for Indian Businesses appeared first on Bhatt & Joshi Associates.