Gujarat International Fin-Tec City, which houses the International Financial Services Centre, India’s first offshore financial destination is showing great progress. Originally conceptualized as a city to focus on inviting and hosting reputed organizations in the business of offshore banking, capital markets, offshore asset management, offshore insurance and ancillary services, it has been able to gain active participation from some very reputed names in the financial services industry worldwide. Despite the obvious pitch that GIFT IFSC is a suitable alternative to the existing alternative international financial jurisdictions, it will still be good for the IFSC GIFT authorities and other regulatory agencies to do a bit more and ensure that the philosophy of ‘ease of doing business’ translates on the ground, we see the intent. These can be categorized into various heads largely related to quality of life, new regulations, changes required having external dependencies, ease of doing business and marketing.

A large part of these discussions were presented by me to the IFSC Retail Committee in the month of August 2020.

Let us start by analysing some of the core strengths of GIFT IFSC. Here is a summary of what one can expect in this article.

  • Strengths of GIFT IFSC
  • Cost of Operations
  • Concerns
  • GIFT Work Life Balance
  • Need for New Regulations and Standstill for existing regulations
  • Tax Tweaking
  • Ease of Doing Business
  • Incremental Regulation with other jurisdictions worldwide
  • True Missed Call or the “V” a new frontier
  • Marketing Outreach

Strengths of GIFT IFSC

To a great extent, this has been made possible on account of the various strengths that the project has in terms of stable Government at central and state level, sound statute driven regulations in place, a living and thriving democracy, growing economy and increased consumption despite minor hiccups, good economic environment of business, country upgrade in terms of ease of doing business index, high quality human resource availability, strong work ethic and business driven philosophy of regulators and workers in Gujarat, robust technological infrastructure in place, a proactive IFSC regulator and the support from Gujarat Government in terms of subsidies for GIFT IFSC entities. On the taxation side, which is a point of contention with most people, it provides for effective tax substance within an hour of travel from Mumbai and tax incentives which are almost at par with other domiciles. One key strength is the complete absence of any tainted history which is something some international offshore financial centres are grappling with.

Cost of Operations

Having seen the core strength, let us take a hard look at the relative cost of operations. A few international fund managers are seriously exploring GIFT IFSC and apart from the qualitative factors mentioned above, it also makes sound commercial sense. It is interesting to note that the set up and operating costs for funds in GIFT IFSC compares very well with other international jurisdictions. A USD 50 million fund can possibly kick off with a set up cost of around 0.074% and a recurring cost of around 0.10% p.a. As against this, comparable set up costs and operating costs in Mauritius would 0.084% and 0.13% p.a . The other much talked about destination is Cayman Islands where the set up and operating costs would be 0.24% and 0.33% p.a respectively. Hongkong is another existing financial destination. However recent developments with respect to Hongkong may cause some level of exodus to Singapore causing a rise in costs for the Singapore jurisdiction. GIFT IFSC costs benefit structure presents an interesting opportunity. But despite the opportunity available, there are some concerns which need to be addressed.


The inherent areas of concern which the GIFT IFSC authority is trying to combat effectively pertain to macro level issues. One is the view that Indian regulations are still seen by some parts of the international financial community as having uncertainty and opacity. Further, there is the issue of creating a fan following which admittedly is a time consuming process. The positive aspect, however, is that GIFT IFSC is the 3rd fastest growing IFSC globally. It is a matter of credit to GIFT IFSC that it has been able to attract substantial attention and has become a discussion point among fund managers worldwide despite the stiff competition from Dubai which is extremely aggressive in its sales pitch, Singapore which is upgrading its position with variable capital funds and the forthcoming threat of Sri Lanka which is building an IFSC with the assistance of China. The regulators, IFSC, are also aware that stability of regulations are key to becoming a preferred hub and are onboard on this issue. And as and when this issue is out of the way, we can consider the positioning of GIFT IFSC from the viewpoint of the quality of human resources.

GIFT Work Life Balance

One of the first aspects that many of us and especially the younger generation looks for today is quality of life and work life balance. Here GIFT needs to invest well in making it a place which is the desired destination to live and work. Certain outdated regulations which may or not be in sync with the lifestyle of the current generation needs to be seriously reviewed. Further the focus on inviting people should extend to people rather than funds itself. It is prudent to invite other service providers and businesses like retail and hospitality. Apart from generating direct employment, this will also facilitate indirect employment., It would be good to market GIFT as a place where one could Walk to Work, Walk to Invest, Walk to Shop, Walk to go home and Walk to School/Colleges, thus focussing on the quality of life aspect. This will make the ecosystem vibrant and attract more citizens to the city. GIFT is already a Green City. The metro rail from Ahmedabad will reach in a few years. There is a plan to build a helipad as well.

All this will need suitable regulation and at the same time, it is important to ensure a certain level of continuity in the regulatory framework.

Need for New Regulations and Standstill for existing regulations

There is a need to bring in some new regulations as well. Currently, in India, Alternative Investment Fund (AIF) Administrators are not subjected to regulatory oversight. It would be appropriate to subject Fund Administrators to a modest non-intrusive level of regulation by the IFSC Authority. This will have two benefits; firstly, it will keep out applicants who are not comfortable with compliance and will increase the credibility factor of intermediaries.

Another area which will need regulatory intervention and this is a point which various organisations have been making over the years is the need for affirming standstill regulation, other than improvements for the next 10 years. This will help better planning of entry and exit of funds and investors and have total clarity on the laws in force without it becoming a dispute that eventually lands up in the Supreme Court and forces guidelines having retrospective effect. This will lend substantial comfort to the funds and investor as he is assured of the same regulatory non adversarial treatment that he contemplated when the investment was made.

It would be helpful to have regulations which permit Overseas Retail Investors to come through IFSC Mutual funds that invest into Indian listed securities. This will only be an extension of the principles of 2018 AIF legislation and existing domestic mutual fund legislation . Such mutual funds shall enjoy the same tax benefits as enjoyed by Category I & II AIF at the least and therefore need an extension to the law. There is a market for Indian mutual funds, which is now coming in through the INR route. Considering the interest of the Indian diaspora in investing in India, the risk of a foreign currency denominated fund can be managed. Incidentally, LIC International, a subsidiary of the State run LIC of India, offers USD denominated pension funds, among other products, to non-resident Indians. It also says that claims can be settled in any currency and money can be transferred anywhere as per the request. India represents a growing market and is in the middle of market cap in the ten relevant stock market nations.

Permission to create holding company structures without attracting NBFC legislation for those companies entering India, is another of the areas which GIFT IFSC can think about. This would be helpful especially for those companies who would have multiple business lines and investment but would prefer to have the accounts consolidated as an investment entity in one place.

There also appears to be some difference in the outward remittance guidelines, one of which allows Indian investors to invest in mutual and alternative investment funds outside the country using the LRS route. However, the same facility is not available for Indian investors using the LRS route to invest in alternative investment funds set up in IFSC. This anomaly needs to be corrected as this will allow the setting up of international funds in GIFT IFSC and provide Indian investors an additional investment option. There is a latent demand for global investing in India and the LRS route is already being used.

The regulatory framework will also need to take care of some taxation issues.

Tax Tweaking

Category III AIF’s have a different tax treatment when compared to Category I and Category II AIF’s. As of now, the benefit of pass through, wherein the incidence of taxation is at the hands of the investor and not at the fund level, is made available to investors in Category I and Category II AIF’s. There is a need to consider extending this to Category III AIF’s too.

We need to take a serious look at some tax tweaking measures. Currently, India is at a disadvantage as Mauritius and Singapore do not charge any tax as business income or Capital Gains on listed derivatives. However, we charge 15% and 10% as Short term Capital Gain or Long Term Capital gain for FPI’s. There is substantial interest in Indian derivatives as is evident in SGX NIFTY. Giving these tax exemptions to such investors is in any way tax neutral to the country, but can bring in the volumes, brokerage fee, better price discovery, licensing fee, and capture the added value right here. This will get more hedge funds into GIFT IFSC since they focus on volatility.

Having addressed the twin issues of regulations, affirm standstill clauses and taxation, we come to the ease of doing business in GIFT IFSC.

Ease of Doing Business

We have been talking at length about ease of doing business and there are various things that the Government can do in terms of making the entire process at GIFT IFSC a lot easier.

We can be the first of the block by mandating existing Fund Administrators already present in GIFT IFSC to conduct a preliminary screening and interview with the newer applicants to weed out applicants that do not meet standard AML/KYC standards. This will improve the regulatory brand and reduce congestion at the regulatory level. It is important to note here that all reputed fund administrators carry out standard global KYC procedures like One World Check, Media Search, Background search, KYC, AML, UBO analysis etc. as a matter of routine. Enlisting their services for this preliminary check would be of great assistance to the regulatory authority.

There is really no reason why corporate services cannot be shared among various fund entities. We need to keep in mind that several billions of investments can be managed by a small team and expecting them to divert and invest into routine regulatory and back end administrative activities would cause them to lose focus on their core activity. As such, it may be worthwhile to encourage shared services such as legal, accounting, secretarial, administration etc for GIFT funds to be administered by the Fund Administration/Corporate Service Providers. By the same yardstick, GIFT IFSC could also permit shared offices for fund managers and funds from the same premises instead of two separate offices for the same action. It stands to reason that there is nothing abnormal about this since funds have no activity of their own and run through the hands of the manager.

Another area of discomfort which can be handled at the office level is to provide a single point clearance for applications. As of now, the process needs approvals from SEZ, GIFT IFSC, MCA & IT. This can be merged into a single point clearance with a single form to be submitted and all authorities can access the data from this single form. This is not a difficult task and can be easily achieved with appropriate use of technology and interactive robotic interface between the various approving departments. To the external world, this will improve ease of doing business right away as it would appear as one stop shop. Incidentally, steps to this effect are already underway between MCA, IT and GST when forming a company. To make this simpler, IFSC can authorise fund administrators to act as the one point, single sign on service model. Such service providers can be GIFT Buddy/ Mitr to hand hold applicants through the application and evaluation process.

All leading institutions today make effective use of technology like CRM tools for interaction with the outside world, internal mail flows for quick and effective transmission of data internally, update boards on the website where the applicant can see the status of his application on a real time basis and video conferencing to make things easy. These are simple to implement actions which will have the benefit of giving GIFT IFSC the edge when it comes to deciding the fund location. Today many regulators use video conferencing for interviewing applicants as well as hearings. Corona has certainly accelerated this feature.

Another area which causes consternation to many investors in any jurisdiction is income tax laws. To enable easy understanding and redressal of these issues, an office of the Income Tax manned by well trained staff who have the necessary networking and linkages with fund administrators needs to be set up. Such officers will generally be able to go on a business friendly approach and answer the bulk of the questions in advance. Going ahead, the GIFT buddy as proposed may also be able to provide some of these answers well in advance. GIFT IFSC would also do well to set up a bench of the Authority for Advance Rulings that accepts petitions through the Income Tax office within GIFT. This way, much of the future litigation can be comfortably nipped in the bud at the start. Improving the efficiencies in the mechanism of withholding taxes and repatriating to non-resident investors is also required. We still have a few issues of multiple clearances from Tax authorities, Central Bank, Authorised Dealers etc. These need to become better streamlined and single window clearance, wherever possible.

Incremental Regulation with other jurisdictions worldwide

This is by no means the complete set. It is also important to commence interaction with other jurisdictions. The world is now referred to as a global marketplace and it is in the best interests of business regulators and jurisdictions to work as a common team. GIFT IFSC could commence somework on passporting with other reputed jurisdictions and move in with some reciprocal arrangements for listing, fund licensing, broker licensing among other things. IFSC may also look at “Incremental Regulation” performing important local checks while relying on partner regulators to do the common checks. This will greatly reduce the time to approve applications while taking advantage of the knowledge and local procedures of the home regulator.

Going forward, it becomes important for GIFT IFSC to explore newer areas of action.

True Missed Call or the “V” a new frontier

Attention also needs to be paid to “Missed Calls Funds”, which is as a result of amendment to sec 5(2) and Sec 115UB of the IT Act. This offers full exemption from Indian Income Tax to those Category I&II AIF registered funds, domiciled in GIFT IFSC, which neither invest in India nor have Indian Investors. This will promote GIFT IFSC as a true third party domicile like Singapore, Hong Kong etc.This has enormous multiplier effect

It is also necessary to allow businesses to form International Business Companies from GIFT IFSC. There exists a law that does not attract Indian Income Tax u/s Sec 5(2). However it needs to be extended to Holdcos as well. When we see all this in conjunction with the investor protection or stand still clauses, the possibility of issues going all the way to the Supreme Court of India and clogging the system is addressed to a very great extent.

GIFT IFSC can also permit companies from nearby nations in South Asia to begin with ( exceptions of certain countries) to list their securities. Many of these countries do not have a developed market as we have. We have deep regulations already in place. Indian income taxes shall be attracted if only Indian residents subscribe to the listing. Extensions to Sec 5(2) need to be extended to such listings as well. In a relevant group of 10 exchanges worldwide, India ranks fifth in terms of market capitalisation. We belong to the same vintage century as the UK, Australia, Japan, Hongkong and Shanghai. Only the US has older stock exchanges. In terms of listing, we are second globally behind PRC & HK combined

And how do we leverage all this? Ultimately, it is important to be visible in the right fora and publicise our set up with an effective marketing programme.

Marketing Outreach

Going forward, there is really no reason why GIFT IFSC cannot leverage on its key strengths of and become the preferred destination when it comes to selection of international offshore financial destinations.

We need to market this effectively with a good mix of media and outreach campaigns. One area, among many others, which highlight in our marketing campaign are the concept of Trust and Schemes. These allow building of funds that have low cost operative costs when compared to many domiciles in the world. In fact, Singapore is now popularising this concept as an invention. We have been having it forever. Most recently, Indian Income Tax authorities have already started issuing Permanent Account Numbers (PAN) at scheme level. This means that the tax liability can be segregated. Further, promote GIFT IFSC as a place to domicile funds under the Indian Income Tax 115UB and 5(2) section funds also called Missed Call Funds.

We have a key strength of low cost of operations as compared with the high grade and easily available professional skills. Some of the actionable points here would be to appoint relevant personnel to industry committees who in turn would function also as evangelists, brand ambassadors, run social media campaigns and webinars and have discussion fora in conjunction with GIFT City developers.

As always Basiz is already operating out of GIFT and happy to answer any questions.

Jai Hind!

CA. Aditya Sesh