Friday, May 17, 2024

International Financial Services Centres (IFSCs): Maximizing Benefits and Ensuring Compliance


The Government of India has introduced International Financial Services Centres (IFSCs) to create a globally competitive financial platform. The first IFSC has been set up in the Gujarat International Finance Tec-City (GIFT City), aiming to make India a hub for international financial services.

Key Features and Benefits of IFSCs

Access to MarketsIFSCs provide global investors and financial entities easy access to the Indian economy and its extensive hinterland. Conversely, they allow Indian entities to tap into international markets.
Operational SectorsIFSCs allow the setting up of units in areas such as banking, investment, insurance, capital markets, asset management, and allied services.
Special Offshore StatusEntities registered in an IFSC operate under a special offshore status within India, enjoying various exemptions and modifications under Indian laws.
Regulatory FrameworkThe International Financial Services Centers Authority (IFSCA), established in April 2020, regulates the IFSCs, integrating the regulatory powers of RBI, SEBI, IRDAI, and PFRDAI to ensure a unified regulatory environment.

Modifications and Exemptions for IFSC Companies under the Companies Act, 2013

Appointment of DirectorsRequirement of having at least one director who has stayed in India for 182 days in the previous calendar year applies from the second financial year post incorporation.
Secretarial StandardsExemption from complying with secretarial standards related to general and board meetings.
Corporate Social Responsibility (CSR)CSR provisions apply only after five years from the commencement of business.
Board MeetingsFirst board meeting to be held within 60 days of incorporation. Subsequently, at least one meeting every half calendar year (instead of four meetings annually).
Form SubmissionsRelaxed timelines for submitting certain forms and returns, such as changes in registered office, delivery of certificates, allotment, and registration of resolutions.

Financial and Tax Benefits

Tax HolidayA 10-year tax holiday.
Goods and Services Tax (GST)Exemption from GST.
Capital Gains TaxNo capital gains tax on transactions.

Promoting Innovation and Financial Technology

Regulatory SandboxFramework for FinTech entities, including Innovation Sandbox, Inter-Operable Regulatory Sandbox (IORS), and Regulatory Sandbox to test innovative financial products and services.
FinTech Incentive SchemeFinancial support for FinTech activities, particularly in sustainable and sustainability-linked finance.

Professional Tips for Maximizing Benefits

  1. Understand and Utilize Exemptions:

    • Take full advantage of the exemptions and modifications under the Companies Act, 2013.
    • Plan your compliance strategy to meet the relaxed requirements for board meetings, director appointments, and form submissions.
  2. Optimize Tax Benefits:

    • Structure your business to maximize the 10-year tax holiday.
    • Leverage the GST exemption and no capital gains tax to improve profitability.
  3. Leverage the Regulatory Sandbox:

    • Use the Innovation Sandbox and Regulatory Sandbox to test and refine financial products in a controlled environment.
    • Apply for the FinTech Incentive Scheme to gain financial support for developing innovative solutions.
  4. Focus on Compliance:

    • Ensure all regulatory requirements are met to avoid penalties. Regularly review compliance obligations under the IFSCA.
    • Maintain robust records and timely filings to stay in good standing.
  5. Engage with IFSCA:

    • Stay updated with the latest regulatory changes and initiatives from IFSCA.
    • Participate in industry forums and discussions facilitated by IFSCA to remain informed and influential.

Conditions for Maximizing Benefits

  • Timely Incorporation: Incorporate within the required timeline to benefit from initial exemptions.
  • Active Compliance: Regularly monitor and comply with all regulatory and statutory requirements.
  • Strategic Planning: Align business operations with available exemptions and tax benefits from the start.
  • Innovation Focus: Leverage regulatory sandboxes to test new financial products and services effectively.
  • Regular Review: Conduct periodic reviews of business and compliance strategies to adapt to changing regulations.

Checkpoints to Avoid Defaults

  1. Director Residency Requirement:

    • Ensure compliance with the director residency requirement by the second financial year.
  2. Board Meetings:

    • Hold the first board meeting within 60 days of incorporation and subsequent meetings every half year.
  3. CSR Provisions:

    • Plan for CSR activities starting from the sixth year of operations to ensure compliance.
  4. Timely Submissions:

    • File all required forms and returns within the relaxed timelines to avoid penalties.
  5. Regular Audits:

    • Conduct internal audits to ensure adherence to all regulatory requirements and take corrective actions promptly.


IFSCs offer a unique opportunity for financial entities to operate under a favorable regulatory and tax regime in India. By understanding and utilizing the available exemptions and benefits, ensuring strict compliance, and focusing on innovation, businesses can maximize their advantages and contribute to India's emergence as a global financial hub.