Q1. What is an International Finance Services Centre (“IFSC”)?

Response:

According to Section 3 (g) of the IFSCA Act, 2019: "International Financial Services Centre"
means an International Financial Services Centre set up, before or after the commencement of
this Act, under section 18 of the Special Economic Zones Act, 2005.”

 An IFSC caters to the customers outside the jurisdiction of domestic economy. Such
centres deal with the flow of finance, financial products, and services across the
borders.
 IFSC as envisaged under the Indian context “is a jurisdiction that provides financial
services to non-residents and residents (Institutions), in foreign currency other than
Indian Rupee (INR).
 ” IFSC is set-up to undertake financial services transactions that are currently carried
on outside India by overseas financial institutions and overseas branches/ subsidiaries
of Indian financial institutions.

Q2. Criteria for qualification under the IFSCA Act and therefore who qualifies to set up
in the IFSC?
Response:

Qualification for setting up a Capital Market IFSC under Securities and Exchange
Board of India (International Financial Services Centres) Guidelines, 2015
 Stock exchange willing to operate as IFSC: Any recognised stock exchange, whether
Indian or foreign, may establish a subsidiary to offer stock exchange services in the
IFSC where at least 51% of the exchange's paid-up equity share capital is held by the
stock exchange, and the remaining shares may be offered to any other recognised
stock exchange, whether Indian or foreign.

Net worth requirement: A stock exchange with a minimum net worth of 25 crore rupees
initially, and which must increase its net worth over the course of three years following the
date of approval to a minimum of 100 crore rupees.

 Clearing corporations willing to operate as IFSC: Any recognised stock exchange or

clearing corporation, whether Indian or foreign, may establish a subsidiary to offer
clearing corporation services in the IFSC where at least 51% of the exchange's paid-
up equity share capital is held by the stock exchange or clearing corporation, and the
 remaining shares may be offered to any other recognised stock exchange or clearing
corporation, whether Indian or foreign.

Net worth requirement: A Clearing corporation with a minimum net worth of 50 crore rupees
initially, and which must increase its net worth over the course of three years following the
date of approval to a minimum of 300 crore rupees.

 Depository willing to operate as IFSC: Any registered depository or any regulated

depository, whether Indian or foreign, may establish a subsidiary to offer depository
services in the IFSC where at least 51% of the exchange's paid-up equity share capital
is held by the depository, and the remaining shares may be offered to any other
recognised stock exchange or clearing corporation or registered depository, whether
Indian or foreign.

Net worth requirement: A Depository with a minimum net worth of 25 crore rupees initially,
and which must increase its net worth over the course of three years following the date of
approval to a minimum of 100 crore rupees.

 The Board must be notified within fifteen days of any acquisition of equity shares of a
registered depository, a recognised clearing organisation, or a recognised stock
exchange in the IFSC.

Qualification for setting up a IFSC Banking Unit under Foreign Exchange Management
(International Financial Services Centre) Regulations, 2015
 Eligibility criteria: IBUs may be established by Indian banks, both public and private
sector banks that are authorized to conduct foreign exchange operations. Only one
IBU might be established at each IFSC by each eligible bank.
 Licensing: Under Section 23 (1)(a) of the Banking Regulation Act of 1949, eligible
banks who are interested in establishing IBUs must first acquire the Reserve Bank's
prior approval before doing so. An IBU will be handled similarly to a branch of an
Indian bank in a foreign country for the majority of regulatory purposes.
 Capital Requirement: The parent bank must give a minimum capital of USD 20
million or equivalent in any other foreign currency to its IBU, which should be
maintained at all times, in order for IBUs to begin operating. However, the IBU must
produce a certificate to this effect acquired from the parent on a semi-annual basis to
RBI and the minimum specified regulatory capital, including for the exposures of the
 IBU, must be maintained on an ongoing basis at the parent level as per rules in the
home country. For the purpose of granting financial assistance to IBU in the form of
capital or liquidity support as and when necessary, the parent bank will be required to
provide a Letter of Comfort.

Qualification for setting up a IFSC Insurance Unit under Insurance Regulatory and
Development Authority of India {Registration and Operations of International
Financial Service Centre Insurance Offices (IIO)} Guidelines, 2017
Indian insurer/ reinsurer:

 An Indian insurer/ reinsurer to be registered with IRDAI

 An Insurer/ reinsurer to be in continuous operations for preceding five years

Foreign insurer/ reinsurer

 (Incorporated) Foreign insurers and reinsurers must be registered or granted a licence

in their place of incorporation before conducting insurance or reinsurance business
there.
 The establishment of an IIO in India requires the approval of the appropriate
authorities in the home country.
 Foreign applicant has been in continuous operation for the previous five years.
 Compliance concerning allocated capital, paid-up equity capital, solvency margin, and
net-owned funds
 Satisfactory compliance track record in the country of incorporation or another nation
in which it operates
 Foreign applicants must register with or receive certification from a national
regulatory environment with which the government of India has signed a DTAA.
 For the last three years, a minimum credit rating with at least good financial security
qualities as stipulated by internationally renowned credit rating agencies is required.

Eligibility criteria as per the Insurance Regulatory and Development Authority of India
{Registration and Operations of International Financial Service Centre Insurance Offices
(IIO)} Guidelines, 2017

 No person or entity shall establish or carry on insurance or reinsurance activity from

an IFSC unless first registered as an IIO with the Authority.
  After registering with the Authority, the IIO's sole purpose is to conduct insurance or
reinsurance business from an IFSC. An IIO must only do business that has been
approved by the Authority.
 The registered IIO may be given permission to conduct direct insurance business from
outside India, from other SEZS, and within the IFSC.
 The IIO registered to conduct direct insurance business may not write direct insurance
business from the DTA apart from when it is permitted by Section 2CB of the Act.

Q3. What is the process for setting up an entity in IFSC, GIFT City?
Response:

The process for setting up an entity in IFSC, GIFT City is as follows:

 The applying organisation must submit an interest letter or mail in the format required
in order to be considered for a place in the GIFT SEZ's incubation facility for the
purpose of opening a business there.
 The organisation applying for space in the GIFT SEZ incubation centre will receive a
proposal from GIFT SEZ.
 It is the organization's responsibility to confirm or accept the proposal that GIFT SEZ
has sent.
 Following confirmation, GIFT SEZ will grant a Provisional Letter of Allotment
(PLOA) to the organization with the aim of setting up an IFSC Unit in the zone.
 In order to obtain approval for the establishment of IFSC Units in GIFT SEZ, an
organisation must submit an application (Form-F) to the Development Commissioner
at KASEZ along with the necessary paperwork, including the PLOA provided by
GIFT SEZ.
 simultaneously submit an application to the concerned regulator (RBI, SEBI, or
IRDA) for the necessary licence to operate as an IFSC Unit in GIFT SEZ in
accordance with the relevant legislation for banking, the capital market, and
insurance.
 Once DC, KASEZ, and the Regulator have given their approval, GIFT SEZ will issue
a Final Letter of Allotment allocating area within the zone for the carrying out of the
authorised operations.
 The approved Units must execute a lease deed/leave and licence with the Developer
or Co-developer for the allotted space.
Role of IFSCA

 Under the International Financial Services Centres Authority Act of 2019, the
International Financial Services Centres Authority (IFSCA) was founded on April 27,
2020. Its main office is in Gujarat's Gandhinagar, often known as GIFT City.
 The IFSCA is a unified authority for the development and regulation of financial
products, financial services and financial institutions in the International Financial
Services Centre (IFSC) in India. The first international financial services hub in India
is now the GIFT IFSC. Prior to the foundation of IFSCA, domestic financial
authorities such as the RBI, SEBI, PFRDA, and IRDAI regulated IFSC operations.
 Due to the dynamic nature of business in the IFSCs, which necessitates a high level of
inter-regulatory cooperation within the financial sector, the IFSCA was founded as a
unified regulator with a holistic view in order to promote ease of doing business in the
IFSC and provide a world-class regulatory environment. The primary goals of the
IFSCA are to forge a solid global connection, concentrate on the requirements of the
Indian economy, and act as an international financial platform for the entire region
and the global economy.

Q4. What are the benefits of setting up in IFSC, GIFT CITY?

Response:

Benefits provided by GIFT city:

1. Gujarat International Finance Tec-City (GIFT), known as the smar , would also serve as a
financial centre, enticing banks, brokerages, and other companies with tax and other
incentives.

2. The city will replace air conditioning with an energy-efficient district cooling system.

3. It will also feature an automatic waste collection system that takes garbage from buildings
at high speeds, as well as a beautifully organised metropolis with dazzling towers and
drinking water on tap.

4. The GIFT city project seeks to provide cutting-edge internal infrastructure that includes all
fundamental urban infrastructure features, as well as strong external connectivity via
highways, metro rail, and Bus Rapid Transit Service.
5. GIFT benefits from being surrounded by a river on one side and a national highway on the
other, as well as being located between Gujarat's capital of Gandhinagar and its business
centre of Ahmedabad, which has a huge international airport.

Q5. What are the legal and tax advantages of setting up an in IFSC, GIFT City?
Response:

The Government of India and the Government of Gujarat have provided numerous incentives
to the entities establishing in the GIFT City. These incentives include tax advantages as well
as the waiver of the registration cost and stamp duty. Details of the same are mentioned as
follows:

INCOME TAX:
Units in IFSC:

 Full Exemption from all taxes for 10 out of 15 years.

 The IFSC Unit has the option of selecting any 10 years from a 15-year block.
 Entities and others established as a unit in the IFSC are subject to MAT/AMT at 9%
of book earnings; however, IFSC companies choosing the new tax regime are not
subject to MAT.
 From April 1, 2020, dividend income issued by IFSC companies will be taxed in the
hands of the shareholders.

Investors:

 Non-residents' interest income on: a) money lent to IFSC units is not taxable. b)
Long-term bonds and rupee-denominated bonds listed on IFSC exchanges are taxed at
a lower rate of 4%.
 Transfer of specific securities which are listed on IFSC exchanges by a non-resident is
not treated as a transfer - Gains arising from such transfers are not taxable in India.

GOODS AND SERVICES TAX (GST)

Units in IFSC:

 There is no GST on the following services: (i) received by unit in IFSC. (ii) Offshore
clientele and IFSC / SEZ units.
 GST is levied on services provided to the Domestic Tariff Area.
Investors:

 There is no GST levied on the transactions carried out in IFSC exchanges

OTHER TAXES AND DUTIES:

Units in IFSC:

As far as the State Subsidies are concerned, the following benefits are provided:

 Lease rental
 PF contribution
 electricity charges

Investors:

The following exemptions are allowed

 Security Transaction Tax (STT)

 Commodity Transaction Tax (CTT)
 stamp duty in respect of transactions carries out on IFSC exchanges.

Operational benefits

 Exemption from currency control restrictions for IFSC Units: Under the SEZ Act, an
IFSC unit is treated as a non-resident.
 Even under the Foreign Exchange Management Act of 2002 ("FEMA"), units in an
IFSC enjoy the benefit of the exchange control provision as a non-resident.

Liberalized currency control regime for Indian residents

Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations,

2004 ("ODI Regulations") restricts investment by an Indian resident into an international firm
in the financial services sector. To enable Indian residents to form and invest funds in GIFT
City, the RBI has permitted sponsor contribution from a sponsor Indian party in an
Alternative Investment Fund (AIF) established overseas, including IFSC, in its Circular dated
May 12, 2021.