How To Set Up In GIFT City IFSC: Authorisation, Vehicle, FEMA And Substance

In brief

• Entry into GIFT IFSC is not a registration. It is an authorisation from the International Financial Services Centres Authority under the framework that fits the activity, a Letter of Approval from the Unit Approval Committee under the special economic zone rules, an incorporation, and, where the money comes from India, a route under the overseas investment rules.
• The activity decides everything else. An activity that fits no IFSCA framework cannot be carried on in the IFSC at all, and the framework fixes the permitted vehicle, the capital and the personnel.
• Capability centres are the most common misconception. Under the International Financial Services Centres Authority (Global In-House Centres) Regulations, 2025 the applicant must be part of a Financial Institution Group, Indian group entities may account for no more than 10 per cent of the unit’s annual revenue, and a unit may not be set up by transferring existing Indian contracts into it.
• An Indian parent is making an overseas investment, not a domestic one, because a limited liability entity in an IFSC is a foreign entity under rule 2(1)(h) of the Foreign Exchange Management (Overseas Investment) Rules, 2022; a financial institution, or a branch of one, in the IFSC is in addition treated as a person resident outside India under regulation 3 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015. Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022 relaxes the net profit condition for an Indian entity that is not itself in financial services, and gives a forty-five day deemed approval where a financial services regulator’s approval is needed. Banking and insurance are carved out of the net profit relaxation, though not of the deemed approval.
• The zone layer sets the clock. The Letter of Approval is valid for one year to commence service, the registered lease deed is due within six months, commencement is generally taken as the first invoice, validity then runs five years, and exit is an approval under rule 74 rather than a lapse.
• Tax changed in 2026. Section 147 of the Income-tax Act, 2025, as amended by the Finance Act, 2026, now allows the 100 per cent deduction to a unit of an IFSC for twenty consecutive tax years out of twenty-five, in place of ten out of fifteen. The 15 per cent rate is not in section 147; it sits in section 218, which taxes income of the nature referred to in section 147(3) at that rate. Section 147(5) denies the deduction altogether to a unit commencing operations on or after 1 April 2026 that is formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India. Models built on the ten-year assumption, and plans that move an existing Indian business into a new unit, both need revisiting.
• What the IFSC does not give is a treaty position of its own. A company incorporated in the IFSC is an Indian company and therefore an Indian tax resident under section 6(10)(a)(i) of the Income-tax Act, 2025, with the treaty access that Indian residence carries and no more; a branch of a foreign entity is not a separate person, so the parent’s residence governs. Nor is Indian-source income uniformly taxable: Schedule VI to the Income-tax Act, 2025 exempts defined categories of IFSC income, chiefly for specified funds and for non-residents, on conditions.
• The comparison that matters is not GIFT against Dubai or Singapore. It is an IFSC unit against a mainland Indian subsidiary, and it is decided by whether the business is financial and non-resident facing, or Indian-customer facing.

This note sets out the decisions in the order they arise, for a foreign group entering GIFT IFSC and for an Indian group setting up a unit there, and states the position as it stands in September 2026. It is written from the perspective of an Ahmedabad law firm advising on GIFT IFSC matters. The firm has no office, unit or registration in GIFT City.

Topics You Can Jump To:

Four layers of law, not one
The decisive question: which framework does the activity fall under?
Choosing the vehicle under any framework: company, limited liability partnership or branch
Where the money comes from: the Indian parent’s route
The zone layer, and a realistic timeline
Substance: the regulatory test and the separate tax test
Tax, in short
IFSC unit or mainland Indian subsidiary?
What to settle before incorporating
Frequently asked questions
About the Author
Related Services
Key Sources

Four layers of law, not one

A unit in GIFT IFSC sits under four bodies of law at the same time, and each carries its own approval. Treating entry as a single process is the most expensive early mistake, because the layers have different decision makers and different clocks.

• The regulator. The International Financial Services Centres Authority Act, 2019 created a single authority for financial products, financial services and financial institutions in an IFSC, exercising within that territory the powers otherwise exercised by the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority.
• The zone. GIFT IFSC sits in a special economic zone, so the unit also needs a Letter of Approval under the Special Economic Zones Act, 2005 and the rules made under it. IFSCA acts as Administrator, and applications go before a Unit Approval Committee which convenes weekly.
• Exchange control. Regulation 3 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 provides that any financial institution or branch of a financial institution set up in the IFSC and permitted or recognised as such by the Government of India or a regulatory authority is treated as a person resident outside India. Regulation 4 leaves it to the regulator concerned to determine the currency in which, and the persons with whom, the unit may do business. Regulation 3 is confined to financial institutions and their branches, so it does not answer for every unit; the characterisation that decides an Indian investor’s route is separate, because a limited liability entity in an IFSC is a foreign entity under rule 2(1)(h) of the Foreign Exchange Management (Overseas Investment) Rules, 2022, whether or not it is a financial institution.
• Entity law. The vehicle is formed in India under whichever statute fits the form the framework permits: the Companies Act, 2013, subject to the exemptions notified for companies in an IFSC; the Limited Liability Partnership Act, 2008; the Indian Trusts Act, 1882, which is the usual form for a fund; or the Indian Partnership Act, 1932 for a partnership of members of professional bodies. A branch is not a separate entity at all, so no incorporation arises, and the parent’s own constitution governs.

The decisive question: which framework does the activity fall under?

IFSCA does not licence businesses in general. It authorises named activities under named frameworks. In the author’s view this is the single most useful thing to establish before any adviser is instructed on structure, because an activity outside every framework cannot be carried on in the IFSC in any vehicle, at any capital level.

Four of those frameworks deserve detail, because they carry the conditions that decide feasibility.

Banking

Regulation 3(1) of the International Financial Services Centres Authority (Banking) Regulations, 2020 requires a licence or permission from the Authority. Regulation 3(3)(a) requires the parent bank to provide a minimum of USD 20 million of capital to a Banking Unit and to maintain it at all times; regulation 3(3A)(a) sets USD 50 million for an IFSC Banking Company. A foreign bank with no presence in India is not excluded: regulation 3(4) provides that it must comply with such additional requirements as the Authority specifies. The consequence is commercial before it is legal. The commitment is the parent’s and it is continuing, so it belongs to the parent’s board and its home regulator before it belongs to any Indian adviser.

Fund management

The IFSCA (Fund Management) Regulations, 2025, notified on 19 February 2025, replaced the 2022 regime and govern both the manager and the scheme. They reduced the minimum scheme corpus to USD 3 million, reduced the minimum client investment for portfolio management services to USD 75,000, and made the appointment of key managerial personnel an intimation requirement rather than a matter for prior approval. Schemes filed under the 2022 regulations did not carry across automatically. An IFSCA circular of 8 April 2025 allowed a venture capital or restricted scheme to launch under the new regime only if it had been taken on record in the six months ending 19 February 2025, or if its placement memorandum had an extended validity running to that date or beyond, with a one-time re-filing route for memoranda that had already expired. The regulations have since been amended three times, most extensively by the Fund Management (Second Amendment) Regulations, 2026, notification IFSCA/GN/2026/015 dated 31 August 2026, in force from its publication in the Gazette on 10 September 2026. That amendment substituted the definition of associate, which now turns on a 20 per cent economic interest, and restated the manager’s own contribution to venture capital and restricted schemes. The 10 per cent ceiling on that contribution does not apply where the manager and its contributing associate are resident outside India with no Indian-resident beneficial owner and no more than one-third of the corpus is invested in a single investee company and its associates. Where there is Indian residence or beneficial ownership, the ceiling rises to 25 per cent, but only if the scheme invests solely in the IFSC or abroad. For an Indian group sponsoring a fund, that second limb is the one that caps its own contribution. Any document set drafted against the 2022 regulations, or against the 2025 text as first notified, needs checking rather than reusing. The categories, capital and scheme thresholds are set out on the firm’s page on fund structuring, and the documentation that follows on its page on fund documentation.

Lending, leasing and treasury

The Finance Company Regulations, 2021 distinguish a finance company, incorporated in the IFSC, from a finance unit, which is a branch of an entity incorporated outside it. Neither may accept public deposits from residents or non-residents, and neither may hold a Banking Unit registration. Core activities include lending in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease, sale and purchase of portfolios, factoring and forfaiting, and global or regional corporate treasury operations. Non-core activities include merchant banking, trusteeship, investment advisory, portfolio management, operating lease, trade financing and distribution of financial products. The minimum owned fund is USD 3 million where core activities are undertaken, USD 0.2 million where only non-core activities are undertaken, and USD 0.2 million for a global or regional corporate treasury centre, in each case subject to any higher amount the Authority specifies.

The Finance Company (Amendment) Regulations, 2026, notification F. No. IFSCA/GN/2026/009 dated 5 May 2026, created the special purpose vehicle as a category of finance company: one incorporated or administered, or both, by a Trust and Company Service Provider, in the manner the Authority specifies. Such a vehicle may undertake leasing or financing activity as permitted by the Authority. Its minimum owned fund is the amount prescribed under the Companies Act, 2013, or such other amount as the Authority specifies, and it is exempt from regulation 4 (prudential requirements) and regulation 8 (corporate governance and disclosure) of the International Financial Services Centres Authority (Finance Company) Regulations, 2021. The service provider must itself be registered with the Authority under Chapter VA of the International Financial Services Centres Authority (TechFin and Ancillary Services) Regulations, 2025, inserted by the International Financial Services Centres Authority (TechFin and Ancillary Services) (Amendment) Regulations, 2026, notification F. No. IFSCA/GN/2026/008 of the same date. The Finance Company amendment names no asset class, although the Authority’s consultation paper of 17 March 2026 framed the change around aircraft leasing. How such a vehicle fits with the asset-specific leasing frameworks is addressed in a draft circular of 13 August 2026, which proposes to merge the Framework for Aircraft Lease and the Framework for Ship Leasing into a single Framework for Leasing Activity, with a dedicated chapter for special purpose vehicles. Under that draft, a vehicle may carry on no other independent commercial activity and may hold only assets costing at least USD 10 million each. Until the circular is issued in final form, the terms on which a particular vehicle may lease aircraft or ships rest on the Authority’s permission.

Capability centres, and the trap in them

The IFSCA (Global In-House Centres) Regulations, 2025, notification F. No. IFSCA/GN/2025/012 dated 24 December 2025, do not open the IFSC to shared service centres generally, and reading them as a general in-house-centre regime is the most frequent error in enquiries. The applicant must fall within the definition of a Financial Institution Group, and the unit’s function is to deliver services relating to financial products and financial services to that group. Services go to non-resident group entities; Indian group entities may account for no more than 10 per cent of the unit’s annual revenue. The unit may not be set up by transferring existing contracts or work arrangements from group entities in India, which closes the obvious arbitrage of relabelling an Indian back office. Promoters and partners must not be from a jurisdiction identified by the Financial Action Task Force as a high-risk jurisdiction subject to a call for action. A principal officer and a compliance officer must be full-time employees based in the IFSC.

So a bank, an insurer, an asset manager or a similar financial group may site its in-house centre in GIFT IFSC. A manufacturing, pharmaceutical or technology group cannot use that route for its own shared services. In the author’s view its realistic alternatives are the ancillary services route, where the work falls within one of the listed categories and is supplied to the financial sector, a treasury centre under the Finance Company Regulations, or the mainland.

Ancillary services and TechFin

The IFSCA (TechFin and Ancillary Services) Regulations, 2025, notification IFSCA/GN/2025/005 dated 8 July 2025, consolidated what had been a framework into regulations. The first schedule lists twenty-eight categories of ancillary service, among them advisory, legal services, auditing, assets management support, fund administration, business process outsourcing, compliance management support, governance support, human resources and payroll processing, risk management, valuation and family office support. The second schedule lists TechFin activities, including big data and analytics, cloud computing, cyber security, distributed ledger technology, regulatory technology and technology capability centres for research and development. Permitted forms are a company or limited liability partnership in the IFSC, a branch of an entity incorporated outside it, or a partnership firm all of whose partners belong to professional bodies constituted under Acts of Parliament, which is the route through which professional practices operate. Registration runs through the Single Window IT System, with an in-principle approval followed by a period, of 180 days, within which the applicant must satisfy the stated conditions before the certificate of registration issues. Providers already operating were given twelve months, extendable to twenty-four, to obtain certificates under the new regime.

Choosing the vehicle under any framework: company, limited liability partnership or branch

This choice arises under every framework in the table above, not only for ancillary services, and each regulation fixes its own list of permitted forms before commercial preference has any say. A Banking Unit is a branch and an IFSC Banking Company is a company. A finance company is incorporated in the IFSC, while a finance unit is a branch. The in-house centre regulations permit a company, a limited liability partnership, or a branch of either incorporated outside the IFSC. The ancillary services regulations add a partnership of professionals. The first step is therefore to read the permitted forms in the framework that applies; the points below matter only within that list.

A branch keeps the activity inside the foreign parent’s balance sheet and avoids a second layer of corporate governance. It does not ring-fence liability, and because it has no equity of its own, it cannot admit third-party investors without restructuring. Where the framework ties the branch to a regulated parent, the activity also stays within the home regulator’s field of view; the Banking Regulations, for example, require a Banking Unit to continue to follow its home regulator’s directions unless the Authority specifies otherwise.

A company or limited liability partnership ring-fences liability and carries its own board or designated partners and its own officers. It is a taxpayer in its own right, whereas a branch’s income is the foreign parent’s. The form does not decide access to the deduction described below: section 147 of the Income-tax Act, 2025 allows it to a unit of an IFSC without conditioning it on the unit’s legal form. What the form changes is whose income it is and, for a company incorporated in India, Indian tax residence. Where the group intends to bring outside capital into the platform later, in the author’s view a company is the cleaner starting point.

Two mechanical points apply whatever the form. The Letter of Approval defines the unit’s authorised operations, so adding an activity later requires both the IFSCA authorisation for that activity and an amendment of the Letter of Approval; the scope sought at the outset is therefore a commercial decision, not a form-filling one. And the currency in which the unit transacts is not the group’s choice: regulation 4 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 leaves it to the regulator, and the applicable framework specifies it. Contractual and transaction work around these choices is described on the firm’s page on transaction support.

Where the money comes from: the Indian parent’s route

This is where Indian groups are caught, and the reason is structural rather than procedural. Rule 2(1)(h) of the Foreign Exchange Management (Overseas Investment) Rules, 2022 defines a foreign entity as an entity formed, registered or incorporated outside India, including in an International Financial Services Centre, that has limited liability. An Indian resident investing in a limited liability entity in the IFSC is therefore making an overseas investment, whether or not that entity is a financial institution under regulation 3 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015. The limited liability condition falls away where the entity’s core activity is in a strategic sector. Otherwise, an unlimited liability vehicle falls outside the definition, including the professional partnership permitted under the International Financial Services Centres Authority (TechFin and Ancillary Services) Regulations, 2025, and its funding route needs separate analysis.

The gateway is rule 15 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, under which a person resident in India may make overseas investment in an IFSC in the manner and subject to the terms and conditions in Schedule V to those Rules. Paragraph 24 of the Foreign Exchange Management (Overseas Investment) Directions, 2022 restates the position. Schedule V does not create a separate regime. Under paragraph 1(2) of Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022, the investor still invests in the manner laid down in the Schedule that ordinarily applies to it: Schedule I for overseas direct investment by an Indian entity, Schedule II for portfolio investment by an Indian entity, Schedule III for a resident individual, and Schedule IV for other residents. Under paragraph 1(1) of Schedule V, the investment must also stay within the limits the Rules provide. The ordinary ceilings therefore survive. An Indian entity’s total financial commitment in all foreign entities may not exceed 400 per cent of its net worth under paragraph 3(1) of Schedule I to the Foreign Exchange Management (Overseas Investment) Rules, 2022. A resident individual invests within the overall ceiling of the Liberalised Remittance Scheme under paragraph 1(1) of Schedule III to those Rules.

Within that framework, the provisos to paragraph 1(2) of Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022 make four adjustments.

• Under proviso (i), where the investment is overseas direct investment in an IFSC, the approval of the financial services regulator concerned, wherever applicable, must be decided within forty-five days of an application complete in all respects, failing which it is deemed approved. The deeming is in the Rules themselves, so it does not depend on any concession by the regulator. Unlike the adjustments in provisos (ii) and (iv), it carries no exclusion for banking or insurance.
• Under proviso (ii), an Indian entity not engaged in financial services activity in India, which does not meet the net profit condition, may still make overseas direct investment in an IFSC entity engaged directly or indirectly in financial services activity, except banking or insurance. The condition it escapes is the net profit record for the preceding three financial years required by paragraph 2(2) of Schedule I to the Foreign Exchange Management (Overseas Investment) Rules, 2022. This is the provision that allows an Indian operating company without the requisite profit record to hold a finance or treasury unit in the IFSC. The test applies to the investing entity, not to its group.
• Under proviso (iii), a person resident in India may contribute to an investment fund or vehicle set up in an IFSC as overseas portfolio investment. Paragraph 24(1) of the Foreign Exchange Management (Overseas Investment) Directions, 2022 adds that an Indian entity or a resident individual may make such investment, including sponsor contribution. It also extends it to unlisted Indian entities, alongside listed Indian companies and resident individuals.
• Under proviso (iv), a resident individual may make overseas direct investment in an IFSC entity, including one engaged in financial services activity other than banking and insurance, if that entity has no subsidiary or step-down subsidiary outside the IFSC where the individual has control in it. Outside the IFSC, paragraph 1(2)(i) of Schedule III to the Foreign Exchange Management (Overseas Investment) Rules, 2022 confines an individual’s overseas direct investment to an operating entity not engaged in financial services activity. Paragraph 24(2) of the Foreign Exchange Management (Overseas Investment) Directions, 2022 confirms that those restrictions do not apply in the IFSC. Control under rule 2(1)(c) of the Foreign Exchange Management (Overseas Investment) Rules, 2022 includes an entitlement to ten per cent or more of voting rights, so the threshold is low. In the author’s reading, the condition bites on the combination of control and an outside subsidiary. Both the individual’s control position and the downstream structure therefore have to be checked at the outset, and again whenever either changes.

Paragraph 1(3) of Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022 also treats a recognised stock exchange in the IFSC as a recognised stock exchange outside India for the purposes of those Rules. That is what allows listing and trading there to be analysed as overseas investment under them.

Four cautions follow from the text.

• Banking and insurance. They are excluded only from the relaxations for non-financial Indian entities and for resident individuals. A group entering those activities stays on the ordinary Schedules, though the forty-five day deeming still protects any regulatory approval its investment needs.
• A parent already in financial services gains nothing from the net profit relaxation. Under paragraph 2(1) of Schedule I to the Foreign Exchange Management (Overseas Investment) Rules, 2022, it still needs net profits during the preceding three financial years, registration with or regulation by a financial services regulator in India, and the approvals required from regulators both in India and in the host jurisdiction. Where the parent is a bank or a non-banking financial institution regulated by the Reserve Bank, paragraph 2(4) of that Schedule also subjects its investment to the Reserve Bank’s own conditions. The forty-five day deeming protects the Indian regulator’s approval. The text does not settle whether it also reaches the approval of the International Financial Services Centres Authority: rule 2(1)(g) of the Foreign Exchange Management (Overseas Investment) Rules, 2022 defines a financial service regulator by naming the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority, and does not name the Authority. Completeness of each application remains the variable worth managing.
• The relaxations do not lift the ceilings. The 400 per cent limit and the Liberalised Remittance Scheme ceiling apply to investment in the IFSC as they do elsewhere.
• A resident individual using the route must watch the downstream structure. Under proviso (iv) to paragraph 1(2) of Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022, the permission is lost where the IFSC entity has a subsidiary or step-down subsidiary outside the IFSC and the individual has control in the IFSC entity.

The zone layer, and a realistic timeline

The zone steps are mechanical and unforgiving, and they are where timetables slip.

• The application goes through the Single Window IT System. Once the common application form is submitted and signed with a digital signature, the application for the zone Letter of Approval is filed automatically on the SEZ Online portal.
• Applications complete in all respects go before the Unit Approval Committee, which meets weekly in hybrid format, and the approval is recorded in the minutes of the meeting before the Letter of Approval issues.
• The unit executes a bond-cum-legal undertaking with respect to its obligations under the SEZ Act and rules, on non-judicial stamp paper of Rs 100, notarised by a notary registered in Gujarat, supported by a calculation sheet of the customs duty and goods and services tax the unit projects to save over the next five financial years.
• A valid Letter of Approval and eligibility certificate precede execution of the lease, and a copy of the registered lease deed must be furnished to the Administrator within six months of the Letter of Approval.
• The Letter of Approval is valid for one year from issue, within which the unit must commence service. The issue of the first invoice is generally treated as commencement. Validity then runs five years from commencement, and is renewed every five years thereafter.
• Exit is an approval, not a lapse. A unit that stops operating must apply for exit under rule 74 of the Special Economic Zones Rules, 2006, cease operations on approval and vacate the premises; allowing the Letter of Approval to expire is not an exit.

On the IFSCA side, the 2025 regimes for in-house centres and for ancillary and TechFin services work in two stages, an in-principle approval followed by 180 days in which to comply before the certificate issues. In the author’s view any plan that fits incorporation, authorisation, premises, hiring and first invoice inside six months is optimistic unless the premises and the compliance officer are identified before the application is filed, and the five-year duty and tax projection in the bond has been thought through rather than assembled at signature.

Substance: the regulatory test and the separate tax test

Substance for regulatory purposes and substance for tax are separate tests, and meeting one does not satisfy the other. The regulatory test is about inputs: regulation 7(5) of the International Financial Services Centres Authority (Fund Management) Regulations, 2025 requires the principal officer and other key managerial personnel to be based in the IFSC, and regulation 10(3) of the International Financial Services Centres Authority (Global In-House Centres) Regulations, 2025 requires a full-time principal officer and compliance officer based there. Section 147 of the Income-tax Act, 2025 contains no staffing or premises condition. It asks different questions: whether the income is from the approved business activities of a unit of an IFSC set up in a Special Economic Zone, whether the unit holds the permission or registration on which the deduction rests, and, for a unit commencing operations on or after 1 April 2026, whether it was formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India. A fund manager relying on section 9(12) of, and Schedule I to, the Income-tax Act, 2025 meets a third set of conditions, directed at the fund’s investor base and the manager’s independence rather than at headcount. In the author’s view the tests overlap only in evidence: a unit whose decisions are visibly taken outside the IFSC invites an argument that its income is not earned from its approved activities there, and a lease does not answer it. Continuing obligations, including anti-money-laundering, cyber resilience and governance requirements, are set out on the firm’s page on regulatory compliance.

Tax, in short

Section 147 of the Income-tax Act, 2025 allows a deduction of 100 per cent of the income specified in section 147(3) to an Offshore Banking Unit and to a unit of an IFSC. The Finance Act, 2026, Act No. 4 of 2026, which received assent on 30 March 2026, substituted section 147(2): for a unit of an IFSC the deduction now runs for twenty consecutive tax years out of twenty-five, at the option of the assessee, in place of ten out of fifteen. The 15 per cent rate is not in section 147. It is in section 218, which provides that where total income includes income of the nature referred to in section 147(3), income-tax on that income is computed at 15 per cent and on the remaining total income at the rates in force. In the author’s reading, that is the rate which matters once the deduction is no longer available. Both changes apply from 1 April 2026, for tax year 2026-27 onwards. Section 147(5) adds a condition that is easy to miss: for any unit commencing operations on or after 1 April 2026, the deduction is available only if the unit is not formed by splitting up or reconstruction or reorganisation or transfer of a business already in existence in India. Any model built on the earlier ten-year assumption understates the position, any document that recites the ten-year rule needs correcting, and any plan that contemplates relocating existing Indian operations into a new unit needs testing against section 147(5) before it is priced.

Indirect tax works through the zone rather than the IFSC. Under section 16(1)(b) of the Integrated Goods and Services Tax Act, 2017, a supply of goods or services for authorised operations to a special economic zone developer or unit is a zero-rated supply, which is why the authorised operations recorded in the Letter of Approval have an immediate tax consequence and not only a regulatory one.

What the deduction does not do belongs in the same breath. It does not create a treaty position. A company incorporated in the IFSC is an Indian company and therefore a resident under section 6(10)(a)(i) of the Income-tax Act, 2025, so it has the treaty access of an Indian resident, subject to the limitation of benefits and principal purpose provisions of the treaty concerned; being in the IFSC neither adds to that nor takes from it. A limited liability partnership formed in the IFSC is resident under section 6(11) of the Income-tax Act, 2025 unless the control and management of its affairs is situated wholly outside India. A branch of a foreign entity is not a separate person at all, so the parent’s residence, and the parent’s treaty with India, govern. Nor is Indian-source income uniformly taxable. Schedule VI to the Income-tax Act, 2025 exempts defined categories of income: for a specified fund, income from the transfer of securities other than shares in a company resident in India, and income from securities issued by a non-resident, in each case to the extent attributable to units held by non-residents; and for non-residents, defined income from offshore derivative instruments, royalty or interest on aircraft and ship leases paid by an IFSC unit, and interest paid by an IFSC unit on moneys it has borrowed. These are conditional entries in a list, not a general shelter.

The comparison between an IFSC platform and a treaty holding jurisdiction is a different exercise, addressed on the firm’s page on international taxation, as is withholding on cross-border payments, on its page on withholding tax on payments to non-residents.

IFSC unit or mainland Indian subsidiary?

The two are not substitutes, and the choice is made on the character of the business rather than on the headline rate.

An IFSC unit suits an activity that is financial in character, denominated in foreign currency and directed at non-residents or at the IFSC: fund management, banking, leasing, treasury, insurance and support services to financial groups. A mainland subsidiary suits an operating business selling into India. In the author’s view a group whose India plan is customer-facing should not be steered into the IFSC by the deduction, because the deduction attaches to income the unit is permitted to earn, and an Indian-facing business cannot earn it there. Corporate and commercial work on the mainland side is described on the firm’s page on corporate law advisory, and dispute resolution and arbitration on its page on domestic and international arbitration.

What to settle before incorporating

• Map the activity to a named framework, and confirm the applicant qualifies to use it. For an in-house centre this means confirming the group is a financial institution group before anything else is done.
• Fix the scope of authorised operations to be sought, remembering that adding an activity later needs both a fresh authorisation and an amendment of the Letter of Approval.
• Fix the vehicle from the forms the applicable framework permits, which may include a company, limited liability partnership, branch or professional partnership, or, for leasing and financing, a special purpose vehicle, and identify the capital or owned fund the framework requires as a standing obligation rather than a subscription.
• Decide who funds the unit and under which limb of Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022, distinguishing an Indian corporate investor, a resident individual and a foreign parent, and checking the banking and insurance carve-outs.
• Where an Indian financial-sector regulator’s approval is needed, file it complete and calendar the forty-five day deeming date.
• Identify premises and the compliance officer before the authorisation application, not after the Letter of Approval.
• Plan the first invoice inside one year of the Letter of Approval, and record the five-year renewal and the exit procedure at the outset.
• Model the tax on the twenty-year deduction and on the 15 per cent rate under section 218 of the Income-tax Act, 2025 that applies to the same income, check that the group’s existing papers do not recite the ten-year rule, and test the plan against section 147(5), which denies the deduction to a unit commencing operations on or after 1 April 2026 that is formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India.

Frequently asked questions

• Does every business in GIFT City need an IFSCA licence?

No, but the answer depends on where in GIFT City the business sits. GIFT City also contains a domestic tariff area and, within its special economic zone, units outside the IFSC; a business there needs no IFSCA authorisation, and cannot claim the IFSC deduction under section 147 of the Income-tax Act, 2025. Within the IFSC the position is the reverse. The activity must fall within an IFSCA framework, and the unit must hold the licence, registration or other authorisation that framework requires; there is no general-purpose entry for an activity outside the frameworks. The deduction under section 147 of the Income-tax Act, 2025 is then available only on a copy of the permission or registration obtained under the International Financial Services Centres Authority Act, 2019, or, for a bank, the permission under section 23(1)(a) of the Banking Regulation Act, 1949.

• Can a foreign company set up a branch in GIFT IFSC instead of a subsidiary?

Yes, for several activities. The fund management, finance unit, in-house centre and ancillary services frameworks each contemplate a branch of an entity incorporated outside the IFSC, and a Banking Unit is a branch of a parent bank by design.

• Is an Indian company’s investment in a GIFT City unit treated as a foreign investment?

Yes, where the unit has limited liability. Such an entity in an IFSC is a foreign entity under rule 2(1)(h) of the Foreign Exchange Management (Overseas Investment) Rules, 2022, so the investment is an overseas investment governed by rule 15 of, and Schedule V to, those Rules rather than by the domestic regime, whether or not the unit is a financial institution within regulation 3 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015.

• Can an Indian group without a profit record fund an IFSC unit?

Where the Indian entity is not engaged in financial services activity in India and the IFSC entity is engaged in financial services other than banking or insurance, Schedule V to the Foreign Exchange Management (Overseas Investment) Rules, 2022 permits the investment even though the net profit condition is not met.

• Can an Indian group set up a capability centre in GIFT IFSC?

Only if it is part of a Financial Institution Group, and only to deliver services relating to financial products and financial services. Indian group entities may account for no more than 10 per cent of the unit’s annual revenue, and existing Indian contracts may not be transferred into the unit.

• How long does it take, realistically?

The zone rules give one year from the Letter of Approval to commence service, and the 2025 registration regimes allow 180 days after in-principle approval to satisfy conditions. In the author’s view the binding constraints in practice are premises and the compliance officer, not the regulator’s processing time.

• How long does the tax holiday now run?

For an IFSC unit, twenty consecutive tax years out of twenty-five, at the option of the assessee, under section 147(2) of the Income-tax Act, 2025, as amended by the Finance Act, 2026. The 15 per cent rate on that income comes from section 218 and not from section 147, and a unit commencing operations on or after 1 April 2026 must also satisfy section 147(5), which excludes a unit formed by splitting up or reconstruction of a business already in existence in India.

• Does a GIFT IFSC entity get Indian treaty benefits?

It does not obtain a separate or additional treaty status by reason of being in the IFSC. A company incorporated in the IFSC is an Indian company and therefore an Indian tax resident under section 6(10)(a)(i) of the Income-tax Act, 2025, with the treaty access that follows from Indian residence, subject to the treaty’s own limitation of benefits and principal purpose provisions. A branch of a foreign entity is not a separate person, so the parent’s residence governs. Separately, Schedule VI to the Income-tax Act, 2025 exempts defined categories of IFSC income on conditions, rather than Indian-source income generally.

About the Author

Ravish Bhatt is an Advocate enrolled with the Bar Council of Gujarat (G/504/2008) and a Solicitor of the Senior Courts of England and Wales, SRA (non-practising) Registration No. 492 477. He holds the Advanced Diploma in International Taxation (ADIT) from the Chartered Institute of Taxation, London. He practises in international taxation, GIFT IFSC advisory, cross-border arbitration and EPC contracts, and is the Managing Partner of R & D Law Chambers LLP, an Ahmedabad law firm which also maintains a presence in Delhi.

Related Services

GIFT IFSC advisory: R & D Law Chambers LLP advises on entry into GIFT IFSC, authorisation under the IFSCA frameworks, exchange control routes and continuing obligations.

Fund structuring: fund management entity categories, scheme structures and corpus requirements in GIFT IFSC.

Fund documentation: private placement memoranda, contribution agreements and scheme documentation.

Regulatory compliance: anti-money-laundering, cyber, governance and reporting obligations of an IFSC unit.

Transaction and contractual advisory: agreements, service arrangements and transaction documents for IFSC units.

International taxation: cross-border tax planning, treaty positions and tax disputes.

Corporate law advisory: incorporation, governance and corporate transactions in India.

Domestic and international arbitration: India-seated and foreign-seated arbitrations, interim relief and enforcement of awards.

Key Sources

• International Financial Services Centres Authority Act, 2019
• Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, notification FEMA 339/2015-RB
• Foreign Exchange Management (Overseas Investment) Rules, 2022, G.S.R. 646(E) dated 22 August 2022, rules 2 and 15 and Schedules I, III and V
• Foreign Exchange Management (Overseas Investment) Directions, 2022, A.P. (DIR Series) Circular No. 12, Reserve Bank of India
• Reserve Bank of India, Master Direction - Overseas Investment, FED Master Direction No. 15/2024-25 dated 24 July 2024, updated as on 1 April 2026, which consolidates the Directions, 2022 (paragraph 24)
• IFSCA (Banking) Regulations, 2020, consolidated as on 14 July 2023
• IFSCA (Finance Company) Regulations, 2021, as amended
• IFSCA (Finance Company) (Amendment) Regulations, 2026, F. No. IFSCA/GN/2026/009 dated 5 May 2026 (special purpose vehicles)
• IFSCA (Fund Management) Regulations, 2025
• IFSCA (Global In-House Centres) Regulations, 2025, dated 24 December 2025
• IFSCA (TechFin and Ancillary Services) Regulations, 2025
• IFSCA framework for aircraft lease
• IFSCA Framework for Ship Leasing, circular F. No. 496/IFSCA/FC/SLF/2022-23/001 dated 16 August 2022, as updated
• IFSCA, Consultation Paper on the Draft Circular titled “Framework for Leasing Activity in the International Financial Services Centre”, dated 13 August 2026
• IFSCA SEZ Compliance FAQs Booklet
• Income-tax Act, 2025, as amended by the Finance Act, 2026, section 147
• Finance Act, 2026 (No. 4 of 2026), Ministry of Law and Justice
• Section 16, Integrated Goods and Services Tax Act, 2017 (Central Board of Indirect Taxes and Customs)
• Income-tax Act, 2025, section 218, Tax on business income of Offshore Banking Units or International Financial Services Centre unit
• IFSCA (TechFin and Ancillary Services) (Amendment) Regulations, 2026, F. No. IFSCA/GN/2026/008 dated 5 May 2026 (Chapter VA, Trust and Company Service Providers)
• Income-tax Act, 2025, section 6, Residence in India
• Income-tax Act, 2025, Schedule VI, Income not to be included in total income of certain eligible persons in International Financial Services Centre or having income therefrom

The views expressed are those of the author. Regulatory frameworks in GIFT IFSC are amended frequently, and outcomes depend on the activity, the applicant and the facts. Specific legal or tax matters should be referred to qualified advisers. Ravish Bhatt is an Advocate (Bar Council of Gujarat) and a non-practising Solicitor of England and Wales.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.