Authored by R & D Law Chambers LLP | Practice led by Ravish Bhatt, Advocate, Bar Council of Gujarat (Enrolment G/504/2008) | Solicitor of the Senior Courts of England and Wales (SRA No. 492 477) | ADIT, Chartered Institute of Taxation, London
Published: [20 july 2026] | Last reviewed: July 2026
An International Financial Services Centre exists only inside a Special Economic Zone. Section 18 of the SEZ Act, 2005 is the statutory bridge: the Central Government approves one IFSC per SEZ, and every IFSC unit in GIFT City is, by express definition, also an SEZ Unit. This article maps the four-layer legal structure of GIFT City, the two separate approval gates (SEZ Letter of Approval and IFSCA registration), the limits of the customs fiction in Section 53, the benefits under Section 26, the Section 80LA and Section 147 income tax position as enhanced by the Finance Act, 2026, and the SEZ compliance obligations, now administered by the Administrator (IFSCA), that bind every financial services business in GIFT IFSC.
1. GIFT IFSC Does Not Float Independently: It Sits Inside SEZ Architecture
| The short answer: An International Financial Services Centre can be set up only within a Special Economic Zone. Section 18 of the SEZ Act, 2005 is the source of GIFT IFSC’s legal existence, and every IFSC unit is also an SEZ Unit, bound by the SEZ Act and the SEZ Rules, 2006 in addition to the IFSCA framework. |
Most structuring errors in GIFT City trace to a single misconception: treating GIFT IFSC as a standalone regulatory concept created by the International Financial Services Centres Authority Act, 2019. It is not. The IFSC is a creature of the Special Economic Zones Act, 2005. Section 18 of the SEZ Act authorises the Central Government to approve an IFSC inside an SEZ, and Section 2(zc) of the SEZ Act expressly includes “a Unit in an International Financial Services Centre” within the definition of “Unit”. The consequence is structural, not cosmetic: an IFSC entity needs SEZ approvals, enjoys SEZ benefits, and carries SEZ compliance obligations, all before and alongside anything the IFSCA framework requires.
Two provisions frame the whole regime and both are frequently overstated. Section 51 gives the SEZ Act overriding effect, but only against inconsistent provisions of other laws. Section 53 deems an SEZ to be outside the customs territory of India, but only for authorised operations and only for customs purposes. Neither provision places GIFT IFSC outside Indian law. Section 4 of this article returns to those limits, because they determine what SEZ status does and does not deliver for a financial services business.
2. The Four-Layer Structure: GIFT City, GIFT SEZ, GIFT IFSC, IFSC Unit
| The short answer: GIFT City is the overall project. GIFT SEZ is the notified Multi-Services SEZ inside it (105.4386 hectares, notified by S.O. 1910(E) dated 18 August 2011). GIFT IFSC is the International Financial Services Centre approved inside GIFT SEZ under Section 18. The IFSC Unit is the individual entity operating within GIFT IFSC. The rest of GIFT City is Domestic Tariff Area. |
Legal status in GIFT City is determined by notification and demarcation, not geography. The four layers are:
GIFT City is the overall development of approximately 886 acres between Ahmedabad and Gandhinagar. It is a project, not a legal jurisdiction. Most of it is ordinary Indian territory for every regulatory purpose.
GIFT SEZ is the area of 105.4386 hectares (261 acres) at villages Phirozpur and Ratanpur, District Gandhinagar, notified as a sector-specific Multi-Services Special Economic Zone under Section 4(1) of the SEZ Act read with Rule 8 of the SEZ Rules, 2006, by Notification S.O. 1910(E) dated 18 August 2011, as amended by S.O. 2989(E) dated 6 July 2023. The developer is Gujarat International Finance Tec-City Company Limited. Because it is a Multi-Services SEZ, GIFT SEZ lawfully hosts both IFSC units and non-IFSC units (for example, IT and ITeS and other service exporters), a point confirmed by the Approval Committee’s own published minutes.
GIFT IFSC is the International Financial Services Centre approved by the Central Government under Section 18(1) of the SEZ Act inside GIFT SEZ. It is India’s first and, at present, only IFSC.
The IFSC Unit is the individual establishment set up by an entrepreneur inside GIFT IFSC: a fund management entity, an IFSC Banking Unit, a finance company, an aircraft or ship leasing entity, or any other IFSCA-regulated business. Under Section 2(zc), it is simultaneously an SEZ Unit.
GIFT DTA is the balance of GIFT City outside the SEZ notification. It is Domestic Tariff Area: ordinary Indian territory under Section 2(i) of the SEZ Act. A business at a GIFT City address may well be in the DTA and outside the SEZ and IFSC framework entirely. Gates help visitors; Gazette notifications govern lawyers.
3. The SEZ Act Definitions That Matter for IFSC Units
| The short answer: Six definitions carry the analysis: SEZ (Section 2(za)), Domestic Tariff Area (Section 2(i)), Developer (Section 2(g)), Entrepreneur (Section 2(j)), Unit (Section 2(zc), expressly including an IFSC unit), and IFSC itself (Section 2(q)). Authorised operations have no standalone definition; they are the operations authorised under Section 4(2) for the Developer and Section 15(9) for the Unit, listed in the Letter of Approval. |
“Special Economic Zone” is defined in Section 2(za): each SEZ notified under the proviso to Section 3(4) and Section 4(1), including a Free Trade and Warehousing Zone and an existing SEZ. Secondary sources frequently mis-cite this as Section 2(g); Section 2(g) in fact defines “Developer”.
“Domestic Tariff Area” is defined in Section 2(i): the whole of India, including territorial waters and the continental shelf, excluding the areas of the SEZs. Another recurring mis-citation attributes this to Section 2(m); Section 2(m) defines “export”.
“International Financial Services Centre” is defined in Section 2(q): an IFSC which has been approved by the Central Government under Section 18(1).
“Developer” and “Entrepreneur”. The Developer (Section 2(g)) holds the Letter of Approval granted by the Central Government under Section 3(10) and creates the zone infrastructure; the definition includes a Co-Developer approved under Section 3(12). The Entrepreneur (Section 2(j)) is the person granted a Letter of Approval to set up a Unit under Section 15(9).
“Unit” is defined in Section 2(zc) as a Unit set up by an entrepreneur in an SEZ, and the definition expressly “includes an existing Unit, an Offshore Banking Unit and a Unit in an International Financial Services Centre”. This is the statutory anchor for everything that follows: the dual status of an IFSC unit is express, not implied.
“Authorised operations” carry no standalone lexical definition in Section 2. They are the operations authorised for the Developer by the Board of Approval under Section 4(2) and, for the Unit, the operations authorised by the approving authority under Section 15(9), every one of which must be mentioned in the Letter of Approval. The processing area in which Units are located is demarcated under Rule 11 of the SEZ Rules, with at least half of the zone area earmarked as processing area under Rule 5.
4. The Scope Limits: What Sections 53 and 51 Do, and What SEZ Law Does Not Do
| The short answer: The customs fiction in Section 53 makes an SEZ a deemed foreign territory only for customs purposes and only for authorised operations. GIFT IFSC remains within India for income tax, FEMA, company law and IFSCA regulation. Section 51 overrides only inconsistent provisions, and the SEZ single window does not replace IFSCA registration, GST, income tax, or MCA compliance. |
Section 53(1) provides that an SEZ “shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations”, and Section 53(2) deems it a port, airport, inland container depot or land customs station under Section 7 of the Customs Act, 1962. Two hard limits follow, and both are directly material to IFSC units.
First, the fiction is customs-only. The SEZ Act extends to the whole of India (Section 1(2)), and an SEZ remains Indian territory for constitutional, income tax, FEMA, Companies Act and IFSCA purposes. An IFSC unit is within the charge of the Income-tax Act (its benefits come from specific provisions, examined in Section 8, not from territorial exclusion), and it is within the jurisdiction of Indian courts.
Second, the fiction is confined to authorised operations. Activity outside the authorised operations listed in the Letter of Approval falls under the Customs Act in the ordinary way (Prestige Polymers, CESTAT Delhi). The Supreme Court reinforced the disciplined reading of the SEZ Act’s fiscal architecture in Adani Power Ltd. v. Union of India (2026 INSC 1, judgment dated 5 January 2026), holding that Section 30 of the SEZ Act, which governs removals from an SEZ to the DTA, is a rate-parity provision and not an independent charging section: in the Court’s words, “Section 30 of the SEZ Act does not create a new customs levy.” The deeming provisions of the SEZ Act operate strictly within their own terms.
Section 51 gives the SEZ Act overriding effect over anything inconsistent contained in any other law. It does not displace laws that operate in parallel without inconsistency: the IFSCA Act, the Income-tax Act, 1961 and the Income-tax Act, 2025, FEMA, 1999 and the Companies Act, 2013 all continue to apply to an IFSC unit according to their own terms.
The single window under Chapter V of the SEZ Act (Sections 13 and 14) covers SEZ unit approval, authorised operations and procurement approvals. It does not subsume IFSCA registration, GST registration (an SEZ unit is a distinct registration under the CGST Rules), income tax compliance, or MCA filings. A single window reduces fragmentation; it does not repeal other laws.
5. Section 18: The Statutory Bridge Between SEZ Law and IFSC Regulation
| The short answer: Section 18(1) empowers the Central Government to approve the setting up of an IFSC in an SEZ and to prescribe requirements for its setting up and operation, with a statutory ceiling of one IFSC per SEZ. Section 18(2) allows the Central Government to prescribe requirements for Units in an IFSC. GIFT IFSC is the only IFSC approved to date. |
Section 18(1) provides that the Central Government “may approve the setting up of an International Financial Services Centre in a Special Economic Zone and prescribe the requirements for setting up and operation of such Centre”, with the proviso that “the Central Government shall approve only one International Financial Services Centre in a Special Economic Zone”. Section 18(2) empowers the Central Government, subject to such guidelines as may be framed by the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and other concerned authorities, to prescribe the requirements for setting up, and the terms and conditions of operation of, Units in an IFSC.
The GIFT IFSC instrument chain
Three instruments carry GIFT IFSC’s legal existence. First, S.O. 1910(E) dated 18 August 2011 notified GIFT SEZ under Section 4(1) read with Rule 8 of the SEZ Rules. Second, the Central Government approved the setting up of the IFSC within GIFT SEZ under Section 18(1); the Ministry of Finance has confirmed in Parliament (Lok Sabha reply, 7 April 2017) that the approval was received under the Act and that the country’s first IFSC became operational at GIFT. Third, a notification issued under Section 18 prescribed that units in an IFSC are to be set up and approved in accordance with the SEZ Rules, 2006 read with the guidelines and regulations framed by the sectoral regulators.
From sectoral guidelines to unified regulation
Section 18(2) reflects the original regulatory design: IFSC units were governed by guidelines of the sectoral regulators. RBI issued the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 (Notification FEMA.339/2015-RB dated 2 March 2015, G.S.R. 218(E)), SEBI issued the SEBI (International Financial Services Centres) Guidelines, 2015 (27 March 2015), and IRDAI issued its IFSC guidelines with effect from 6 April 2015. That fragmented model was replaced by the International Financial Services Centres Authority Act, 2019. The IFSCA was established on 27 April 2020 and, under Section 13 of the IFSCA Act, exercises the powers of RBI, SEBI, IRDAI and PFRDA in relation to financial products, financial services and financial institutions in an IFSC.
The unification was completed on the SEZ side by Notification S.O. 940(E) dated 28 February 2024, issued by the Ministry of Finance under Section 31(1) of the IFSCA Act, which modified the SEZ Act in its application to IFSC units: a new sub-section (7) of Section 12 vests the powers and functions of the Development Commissioner, in respect of IFSC units, in an officer nominated by IFSCA and designated as the Administrator (IFSCA), and the Administrator chairs the Approval Committee for such units. IFSCA designated its Executive Director as Administrator (IFSCA) by Public Notice dated 7 March 2024. An IFSC entity therefore now deals with a single authority, IFSCA, for both its SEZ approvals and its financial services regulation, even though the two legal frameworks remain distinct.
6. One Entity, Two Approval Gates: The SEZ Letter of Approval and IFSCA Registration
| The short answer: Every IFSC entity must clear two separate gates before commencing operations: the SEZ Letter of Approval, which is mandatory and must be obtained before the IFSCA regulatory approval, and the IFSCA registration or licence under the applicable IFSCA regulation. Neither gate implies the other. Both applications now flow through IFSCA’s Single Window IT System (SWIT) portal via the Common Application Form. |
The comparison below states the dual character of an IFSC unit:
| Ordinary SEZ Unit | IFSC Unit |
| Manufacturing, services, trading or warehousing | Notified financial products, financial services and financial institutions |
| SEZ Act, 2005 and SEZ Rules, 2006 | SEZ Act and SEZ Rules, plus IFSCA Act, 2019 and IFSCA regulations, circulars and frameworks |
| Development Commissioner and Approval Committee | Administrator (IFSCA) and the Unit Approval Committee chaired by the Administrator (S.O. 940(E), 28 February 2024) |
| Positive Net Foreign Exchange over five years (Rule 53) | Exempt from the Rule 53 NFE requirement for units providing financial services (Rule 53A) |
| Sectoral regulators apply directly | IFSCA exercises the IFSC-facing powers of RBI, SEBI, IRDAI and PFRDA (Section 13, IFSCA Act) |
Gate 1: the SEZ Letter of Approval
The application for a Unit is made under Rule 17 of the SEZ Rules submitted in the prescribed Form F and considered under Rule 18, which requires the Approval Committee to approve, modify or reject within 15 days. The Letter of Approval issued under Rule 19 in Form G specifies the authorised operations; it is valid for one year within which the unit must commence operations, extendable on cause shown. For IFSC units, the LOA is issued by the Administrator (IFSCA) in Form GA, under sub-rule (1A) of Rule 19 inserted by the Special Economic Zones (Amendment) Rules, 2026 (G.S.R. 114(E) dated 3 February 2026); the Form GA LOA is valid for one year for implementation and, on commencement of operations, for five years from commencement. A registered lease deed must be furnished within six months of the LOA, failing which the Unit Approval Committee may withdraw the LOA after a hearing (Rule 18(2)).
Gate 2: IFSCA registration or licence
The IFSCA registration is a separate legal act under the applicable IFSCA regulation: the Fund Management Regulations for a fund management entity, the banking framework for an IFSC Banking Unit, the Finance Company Regulations for lending and leasing businesses, and so on, each with its own capital, fit-and-proper, key managerial personnel and substance requirements. The official position is explicit: the SEZ LOA must be obtained before the IFSCA approval, and an IFSCA licence without a subsisting LOA does not sustain the unit’s existence in the SEZ.
Worked example: a fund management entity in GIFT IFSC files the Common Application Form on the SWIT portal. Section D of that form generates the SEZ LOA application on the SEZ Online portal; the Unit Approval Committee, chaired by the Administrator (IFSCA), decides it; the LOA issues with authorised operations matching the proposed fund management activity; the entity then completes IFSCA registration under the Fund Management Regulations, executes its lease deed and Bond-cum-Legal Undertaking, and only then commences operations. The authorised operations in the LOA and the IFSCA-registered activity must be aligned; a mismatch between the two is a compliance defect on both tracks.
7. Authorised Operations: The Compliance Spine of Every Benefit Claim
| The short answer: Every SEZ benefit attaches to authorised operations, not to the unit’s identity or address. Since 1 October 2023, Section 16(1)(b) of the IGST Act zero-rates supplies to an SEZ unit or developer only where they are for authorised operations, and the supplier’s refund depends on endorsement by the specified officer that the goods or services were so received. |
The Letter of Approval is the controlling document for every benefit claim. Each duty-free import, each procurement from the DTA and each inward supply must map to an authorised operation listed in the LOA. SEZ benefits are use-based and approval-based, not identity-based.
The GST position is now express. With effect from 1 October 2023, Section 16(1)(b) of the IGST Act, 2017 zero-rates the supply of goods or services “for authorised operations” to an SEZ developer or SEZ unit. The pre-amendment ambiguity over whether all supplies to an SEZ qualified is closed. The mechanics follow CBIC Circular No. 48/22/2018-GST dated 14 June 2018 and the second proviso to Rule 89(1) of the CGST Rules: the DTA supplier’s refund claim depends on the goods or services having been admitted for authorised operations, as endorsed by the specified officer of the zone through the DTA Procurement Form or DTA Services Procurement Form on the SEZ Online portal. An unendorsed supply exposes the DTA supplier to a demand; for the IFSC unit, it sours vendor relationships and invites scrutiny of the procurement file.
For IFSC units the discipline has a second dimension. The SEZ-authorised operations and the IFSCA-registered activity are determined by two different instruments under two different statutes. Where a unit expands or changes its IFSCA-regulated business, the LOA must be amended to match (through the broad-banding procedure on the SEZ Online portal) before the changed activity begins. Operating an IFSCA-permitted activity that is not an authorised operation under the LOA, or procuring duty-free for it, is among the most common and most avoidable compliance defects in GIFT IFSC.
8. Benefits: Section 26, the Movement Matrix, and the Section 80LA / Section 147 Tax Holiday
| The short answer: IFSC units receive customs and procurement exemptions under Section 26 of the SEZ Act for authorised operations, and an income tax deduction under Section 80LA of the Income-tax Act, 1961 (Section 147 of the Income-tax Act, 2025), which the Finance Act, 2026 has enhanced to 100% of eligible income for 20 consecutive tax years out of 25, at the option of the assessee. Section 10AA is not the IFSC incentive. |
Section 26 exemptions and the movement matrix
Section 26(1) exempts every Developer and entrepreneur, for authorised operations, from customs duty on goods imported into or services provided in the SEZ (clause (a)) and on goods exported or services provided from the SEZ to any place outside India (clause (b)), among other exemptions now largely subsumed by GST zero-rating. There is one exception worth flagging for capital-intensive IFSC verticals such as aircraft leasing: GST Compensation Cess on imports is not covered by the Section 26(1)(a) exemption, as held by the Andhra Pradesh High Court in the case of Maithan Alloys Limited vs Union Of India (W.P.Nos.1009 of 2019, 6216 and 2631 of 2021), because compensation cess is not a duty of customs.
| Movement | Legal treatment |
| Outside India into SEZ | Import into the SEZ; duty-free under Section 26(1)(a) if for authorised operations |
| DTA into SEZ | Treated as export (Section 2(m)(ii)); zero-rated under Section 16(1)(b) of the IGST Act for authorised operations |
| SEZ to outside India | Export (Section 2(m)(i)) |
| SEZ into DTA | Section 30 clearance: customs duties as leviable on import; a rate-parity provision, not an independent charge (Adani Power, 2026 INSC 1) |
The income tax position: Section 80LA and Section 147, not Section 10AA
A persistent confusion must be put down. Section 10AA of the Income-tax Act, 1961, the general SEZ unit deduction, is closed: it is unavailable to units commencing operations on or after 1 April 2021. The operative income tax incentive for IFSC units is Section 80LA of the 1961 Act, carried into Section 147 of the Income-tax Act, 2025. These are different provisions with different eligibility conditions, and the sunset of Section 10AA has no bearing on the IFSC deduction.
The Finance Act, 2026 has materially enhanced the IFSC holiday. As enacted, the amendment to Section 147 of the 2025 Act provides the 100% deduction on eligible income of an IFSC unit for 20 consecutive tax years out of 25 years beginning from the relevant tax year, at the option of the assessee, in place of the earlier 10 consecutive years out of 15. Transitional provision is made for units whose tenth year of deduction under Section 80LA(1) of the 1961 Act ended on 31 March 2025. A new anti-abuse condition accompanies the enhancement: for units commencing operations on or after 1 April 2026, the deduction is available only if the unit is not formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India. Substance in the IFSC unit’s formation is therefore now an express statutory condition of the tax holiday, not merely a GAAR-driven prudence.
Two further planning notes. First, eligibility under Section 80LA / Section 147 turns on income from the IFSC unit’s regulated business; it does not exempt everything an entity earns. Second, the deduction operates within the ordinary charge of Indian income tax: transfer pricing applies to related-party dealings of the IFSC unit, and treaty and GAAR analysis remains relevant to the wider structure. The tax architecture of specific verticals (fund management under Sections 10(4D) and 10(23FBC), leasing incentives, and the FEMA treatment of IFSC units as persons resident outside India under Notification FEMA.339/2015-RB dated 2 March 2015) is addressed in our fund structuring and regulatory and compliance advisory pages for GIFT IFSC.
9. Compliance Obligations and Their Breach Consequences, Paired
| The short answer: Four SEZ obligations bind an IFSC unit: the Bond-cum-Legal Undertaking, the authorised-operations discipline of the LOA, periodic reporting to the Administrator (IFSCA), and orderly exit under Rule 74. IFSC units providing financial services are exempt from the Rule 53 Net Foreign Exchange requirement by Rule 53A. LOA cancellation under Section 16 and IFSCA enforcement run on independent tracks; both must be managed in parallel. |
Bond-cum-Legal Undertaking (Rule 22). Every unit executes a BLUT covering the proper use of duty-free goods and services and the discharge of duties on DTA clearances, in Form H, with a bond value referable to the duty foregone. The consequence of breach is direct: duty-free procurement outside authorised operations, or unaccounted goods, triggers recovery with the BLUT as the enforcement instrument (Rule 25).
The NFE position: Rule 53A displaces the default. Rule 53 of the SEZ Rules imposes the positive Net Foreign Exchange obligation on SEZ units, computed cumulatively over five-year blocks. For GIFT IFSC, Rule 53A exempts from the Rule 53 requirement any “Unit setup in an International Financial Service Centre providing financial service and regulated by the International Financial Services Centres Authority”. The current Rule 53A was substituted by the SEZ (Second Amendment) Rules, 2023 (G.S.R. 334(E)), which replaced an earlier and narrower Rule 53A that had exempted only specified categories such as AIFs. The exemption now attaches to the unit’s character as an IFSCA-regulated financial services provider, subject to both limbs of the rule being satisfied: the unit must provide a financial service and be regulated by IFSCA. The compliance profile of an IFSC unit is therefore materially lighter than that of an ordinary SEZ unit on this point. Reporting obligations nonetheless continue: performance reports and the Annual Performance Report are filed with the office of the Administrator (IFSCA), and non-filing attracts follow-up and, ultimately, penal exposure.
LOA discipline and Section 16 cancellation. The LOA must be kept current: operations commenced within its validity, the lease deed registered within six months (Rule 18(2)), and authorised operations amended before the business changes. The Approval Committee may cancel the LOA under Section 16(1) where the entrepreneur has persistently contravened the terms and conditions, subject to the mandatory hearing in the proviso. Cancellation ends the exemptions (Section 16(2)), obliges remittance of benefits availed (Section 16(3)), and carries an appeal to the Board of Approval (Section 16(4)). For an IFSC unit the risk is dual: SEZ cancellation and IFSCA enforcement (inspection, directions, suspension or cancellation of registration, monetary penalty) are independent proceedings under different statutes. Neither stays the other, and a defence strategy must run both tracks in parallel.
GST endorsement failure. As Section 7 explains, the zero-rating of inward supplies depends on the authorised-operations endorsement. The breach consequence lands first on the DTA supplier as a refund denial or demand, and rebounds on the unit commercially and in audit.
Exit and debonding (Rule 74). Exit requires duty on the depreciated value of capital goods procured duty-free, settlement of the BLUT, reconciliation of records, and surrender of the LOA. For an IFSC unit, surrender of the IFSCA registration is a separate step under the applicable IFSCA regulation. The exit should be planned as a single project across both frameworks, ordinarily over eight to twelve weeks, so that duty, GST and registration consequences are settled in the right order and DTA suppliers stop treating the unit as an SEZ entity from the correct date.
Developer-level dependency. An IFSC unit’s SEZ status ultimately rests on the continued validity of the Developer’s approval and the zone’s notification. The Telangana High Court’s decision in Omics International (Writ Appeal No. 304 of 2026, decided 13 March 2026), concerning de-notification where a Developer’s LOA had lapsed, illustrates that zone-level events can reach unit-level interests. This is a monitoring point, not a present risk in GIFT SEZ, whose developer and co-developer arrangements are active and expanding on the public record.
The SEZ Act creates the territory and the Unit; the IFSCA Act governs what the Unit does inside that territory. The next article in this series examines the IFSCA Act, 2019: the definitions of financial product, financial service and financial institution, the transfer of regulatory powers under Section 13, and the hierarchy of regulations, circulars and frameworks through which IFSCA governs each vertical.
Frequently Asked Questions
1. Is a GIFT IFSC entity an SEZ Unit?
Yes, by express statutory definition. Section 2(zc) of the SEZ Act, 2005 defines “Unit” to include “a Unit in an International Financial Services Centre”. Every IFSCA-approved entity in GIFT IFSC is therefore also an SEZ Unit and must hold a Letter of Approval under the SEZ Act and comply with the SEZ Act and SEZ Rules, 2006 throughout its life cycle, from setup through exit.
2. Does SEZ Unit approval mean IFSCA registration is automatic?
No. The SEZ Letter of Approval and the IFSCA registration or licence are two separate approvals under two different statutes, and both are mandatory before operations commence. The official sequence requires the SEZ LOA to be obtained before the IFSCA regulatory approval. Both applications are filed through the Common Application Form on IFSCA’s SWIT portal, but each is decided on its own legal criteria.
3. Does the Net Foreign Exchange (NFE) obligation apply to IFSC units?
No, not to IFSC units providing financial services. Rule 53A of the SEZ Rules, 2006, as substituted by the SEZ (Second Amendment) Rules, 2023 (G.S.R. 334(E)), exempts a unit set up in an IFSC providing financial service and regulated by IFSCA from the positive NFE requirement in Rule 53 that binds ordinary SEZ units over five-year blocks. Periodic reporting to the office of the Administrator (IFSCA), including the Annual Performance Report, continues to apply.
4. Is GIFT IFSC the same as GIFT SEZ or GIFT City?
No. GIFT City is the overall 886-acre project; most of it is Domestic Tariff Area under ordinary Indian law. GIFT SEZ is the 105.4386-hectare Multi-Services SEZ notified by S.O. 1910(E) dated 18 August 2011. GIFT IFSC is the International Financial Services Centre approved under Section 18(1) of the SEZ Act inside GIFT SEZ, and the SEZ also lawfully hosts non-IFSC units. Legal status depends on the notification and demarcation, not the address.
5. Does the SEZ “deemed foreign territory” status put GIFT IFSC outside Indian tax and FEMA law?
No. Section 53 of the SEZ Act deems an SEZ outside the customs territory of India only for authorised operations and only for customs purposes. An IFSC unit remains within Indian income tax law (its benefits flow from Section 80LA of the Income-tax Act, 1961 and Section 147 of the Income-tax Act, 2025), within the Companies Act, and within FEMA, under which it is treated as a person resident outside India by Notification FEMA.339/2015-RB, a designation with specific consequences rather than a general exemption.
How R & D Law Chambers Advises on GIFT IFSC
The distinction between an SEZ Letter of Approval and IFSCA registration, and the alignment of authorised operations with the IFSCA-regulated activity, is not a formality: it is where most later disputes and benefit reversals originate. Our GIFT IFSC practice works across the layers this article describes.
Fund structuring in GIFT IFSC: legal, tax and regulatory design for FMEs, AIFs and asset managers, including Section 80LA and Section 147 planning and substance-first structuring.
Regulatory and compliance advisory in GIFT IFSC: SEZ Letter of Approval and IFSCA licensing, authorised-operations alignment, the Bond-cum-Legal Undertaking, and ongoing reporting to the Administrator (IFSCA).
Fund documentation and legal structuring for FMEs: PPMs, contribution agreements, and fund and investment management agreements aligned with IFSCA regulations and SEZ conditions.
Transaction and contractual advisory in GIFT IFSC: cross-border contracts, enforceability, and dispute-prevention drafting for IFSC entities and their counterparties.
This article is for informational purposes only and does not constitute legal or tax advice. The SEZ and IFSC framework involves statutes, delegated legislation, notifications and regulatory instruments that change frequently and must be assessed for each specific fact pattern. The views expressed are those of the author. 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. R & D Law Chambers LLP is registered under the Indian Advocates Act.