Complete Guide to GIFT City Incorporation, Tax Incentives & SEZ Benefits

This article, titled “Complete Guide to GIFT City Incorporation, Tax Incentives & SEZ Benefits,” has been co-authored by Adv. Siddhant Jain, a legal professional with expertise in corporate law and financial regulatory frameworks, and Kunal Sengar, a student of SGM College, Mathura, with a strong academic interest in international finance and economic policy. The authors have collaborated to provide a comprehensive and practical guide to navigating the legal, tax, and regulatory aspects of setting up operations in GIFT City, India’s premier International Financial Services Centre (IFSC).

Key Points

1. GIFT City is India’s first International Financial Services Centre (IFSC) offering global-standard infrastructure and regulatory ease.
2. Businesses in GIFT IFSC enjoy 100% income tax exemption for 10 years, GST relief, and FEMA relaxations.
3. Incorporation involves multiple steps: MCA registration, SEZ unit approval, and IFSCA licensing.
4. Only export-oriented financial services (like banking, insurance, fund management) are allowed; domestic-only businesses are not permitted.
5. GIFT City offers a single-window clearance, reduced operational costs, and access to global capital markets.

Abstract

This article provides a comprehensive overview of GIFT City (Gujarat International Finance Tec-City), India’s first International Financial Services Centre (IFSC) located in Gandhinagar, Gujarat. As a part of a Multi-Services Special Economic Zone (SEZ), GIFT City offers a unique multi-zone structure encompassing the Domestic Tariff Area (DTA), SEZ, and IFSC, designed to attract global financial institutions through a host of regulatory, tax, and operational incentives. The article outlines the legal and regulatory framework governed by the International Financial Services Centres Authority (IFSCA), the incorporation process under the Companies Act, SEZ regulations, and IFSCA licensing. It details the specific documentation, post-incorporation compliances, and substantial fiscal benefits such as income tax exemptions, GST relief, and FEMA relaxations. Furthermore, the article contrasts incorporation in GIFT City with traditional Indian cities and highlights the strategic advantages GIFT City offers in accessing global capital markets, operational efficiency, and cost competitiveness. Intended for businesses in banking, insurance, fund management, fintech, and other export-oriented services, the article positions GIFT City as a competitive international financial hub aligned with India’s global ambitions.

GIFT CITY

GIFT City (Gujarat International Finance Tec‑City) is India’s first International Financial Services Centre (IFSC) located in Gandhinagar, Gujarat. It is part of a Multi‑Services Special Economic Zone (SEZ) and operates under a unified regulatory framework to develop global financial services in India.

GIFT City is divided into two zones:

1. Domestic Tariff Area (DTA): This zone is meant for domestic companies and is subject to Indian laws and regulations. Companies operating within this zone can cater to the domestic market and benefit from various tax incentives offered by the Indian government.
2. Special Economic Zone (SEZ): This zone is meant for international companies and is designed to promote exports and foreign investments. Companies operating within this zone enjoy a range of incentives, including tax exemptions, duty-free imports and exports, and simplified regulatory procedures. The SEZ has been further divided into two zones: SEZ PA (Processing Area) and SEZ NPA (Non-Processing Area).
   1. The SEZ PA is the core of the GIFT City and is designed to provide state-of-the-art infrastructure to various financial institutions, banks, and other businesses. The SEZ PA comprises commercial buildings, residential towers, a convention centre, and a recreational area. This zone is primarily intended for businesses that require specialized infrastructure, tax incentives, and other benefits provided by the Special Economic Zones Act, 2005 (India).
   2. On the other hand, the SEZ NPA is the area surrounding the SEZ PA and is intended to provide support services to the businesses operating in the SEZ PA. It includes residential apartments, hotels, hospitals, schools, and other support facilities.

How GIFT City Differs from Normal Cities

1. Multi‑Zone Structure (IFSC, DTA, SEZ)[1]
   • IFSC Zone: Designed for cross‑border financial transactions in foreign currency.
   • DTA Zone: Domestic Tariff Area for normal Indian businesses operating under regular tax/regulatory regime.
   • SEZ Zone: Special Economic Zone offering fiscal and regulatory incentives for export‑oriented units.

2. Exclusive International Financial Focus[2]
   • GIFT IFSC caters only to international and cross‑border financial services — e.g., banking, insurance, aircraft leasing, fund management.
   • Transactions are primarily conducted in foreign currencies (USD, EUR, GBP, etc.), though INR is permitted for domestic expenses.
3. Tax & Regulatory Incentives[3]
   • Income Tax Holiday: 100% exemption for 10 consecutive years within first 15 years (Sec 80LA, Income‑Tax Act, 1961).
   • GST Exemption: No GST on services rendered to overseas clients.
   • FEMA Liberalization: Special exemptions for foreign currency operations and relaxed capital movement.
4. Single Unified Regulator
   • Unlike a normal city company (regulated separately by MCA, RBI, SEBI, IRDAI depending on activity), GIFT IFSC entities are primarily regulated by IFSCA, which consolidates all functions.
   • This results in streamlined licensing and compliance.

Legal and Regulatory Framework

1. Role of the IFSCA

• The International Financial Services Centres Authority (IFSCA) was established in April 2020 under the IFSCA Act, 2019 as the unified regulator for all financial services within IFSCs, including GIFT City.
• It consolidates the powers of:
  • RBI (for banking)
  • SEBI (for securities markets)
  • IRDAI (for insurance)
  • PFRDA (for pensions)
• IFSCA issues licenses, regulates business conduct, supervises compliance, and prescribes prudential norms for all regulated entities.
  
  

2. Applicability of the Companies Act, 2013

• All entities incorporated in GIFT IFSC follow the Companies Act, 2013 just like entities in any other city.
• However, certain special provisions apply:
  • Name must usually include “IFSC” or similar identification.
  • Specific filings and disclosures as per IFSCA circulars.
  • Exemptions/modifications for compliance timelines or reporting formats as notified by IFSCA in consultation with MCA.

3. SEZ Implications

• GIFT IFSC is located in a Special Economic Zone (SEZ) notified under the Special Economic Zones Act, 2005.
• Each IFSC unit must comply with SEZ requirements, including:
  • Unit Approval by the Development Commissioner (DC) of GIFT SEZ.
  • Execution of a Bond‑cum‑Letter of Undertaking (BLUT) to avail fiscal benefits.
  • Adherence to SEZ operational conditions, such as Net Foreign Exchange earning obligations.
• The SEZ framework provides customs duty exemption, income tax benefits, and operational incentives.

Types of Entities That Can Be Set Up

• Private or Public Limited Companies (incorporated via MCA, required to include “IFSC” in name)
• LLPs (permitted under IFSC regime)
• Branch or Subsidiary of domestic or foreign companies
• IFSC Financial Units:

• IFSC Banking Units (IBU)
• Insurance Offices
• Fund Management Entities / AIFs / PMS / ETFs under IFSCA (FME Regulations, 2022)

Pre-Incorporation Considerations

Step 1: Finalize the Framework Under Which the Business Falls

The first step in the registration process is to determine the appropriate regulatory framework for your business. GIFT IFSC offers various frameworks depending on the nature of your business, such as banking, insurance, capital markets, and asset management. Each framework has specific regulatory requirements and benefits. Conduct thorough research or consult with a regulatory expert to identify the best fit for your business.

Step 2: Finalize the Structure: LLP, Company, or Trust

Once you have identified the appropriate framework, the next step is to decide on the legal structure of your business. Common structures include Limited Liability Partnership (LLP), Company, or Trust. Each structure has its own set of advantages and regulatory implications:

• LLP: Suitable for professional services firms or small businesses, offering flexibility and limited liability.
• Company: Ideal for larger businesses seeking to raise capital, offering limited liability and ease of transferability.
• Trust: Suitable for asset management and fiduciary activities, offering specific regulatory benefits under the chosen framework

Step 3: Name Application Under the Structure

After finalizing the structure, the next step is to choose and apply for a business name. The name should comply with the naming guidelines set by the regulatory authorities. Submit an application for name approval to the Registrar of Companies (RoC) or the relevant authority under the chosen structure. Ensure that the name is unique and reflective of your business activities.

Step 4: Get Provisional Letter of Allotment (PLOA) for Space at the GIFT SEZ

To operate in GIFT City, your business needs a physical presence within the Special Economic Zone (SEZ). Apply for a Provisional Letter of Allotment (PLOA) for office space. The application should include details about your business and its space requirements.

Step 5: Complete the Structure Registration Process

With the PLOA in hand, proceed to complete the registration process for your chosen business structure. This involves:

• Filing the necessary incorporation documents with the Registrar of Companies (RoC) for a company or LLP.
• Registering the trust deed with the relevant authorities for a trust.
• Complying with all regulatory requirements, including capital contributions, director/partner appointments, and statutory declarations.

Step 6: Apply to IFSCA for LOA & Business Approval

The International Financial Services Centres Authority (IFSCA) is the primary regulatory body for GIFT IFSC. Apply to IFSCA for a Letter of Approval (LOA) and approval to operate your business within the chosen framework. The application should include:

• Detailed business plan.
• Compliance documentation.
• Proof of registration.
• Details of the PLOA.

IFSCA will review your application to ensure compliance with regulatory standards and the strategic fit within GIFT IFSC.

Step 7: Obtain LOA & Certificate of Registration

Upon successful review, IFSCA will issue the LOA and Certificate of Registration. This certificate confirms that your business is authorized to operate in GIFT IFSC under the specified framework and structure. Ensure that all conditions mentioned in the LOA are met and maintained throughout your business operations.

Step 8: Start Business Operations

With the LOA and Certificate of Registration in place, you are now ready to commence business operations in GIFT IFSC. Set up your office space as per the PLOA, deploy your team, and start providing services or conducting business activities as per the approved framework.        

Step‑by‑Step Incorporation Process

A. Incorporation Under Companies Act, 2013 (India) (MCA Steps)

1. Apply for name reservation via RUN / SPICe+ Part A
2. File SPICe+ Part B (MoA/AoA, DIN, PAN, TAN, ESIC, EPFO)
3. Receive Certificate of Incorporation from ROC

B. GIFT City / IFSC Approvals

1. Secure Provisional Letter of Allotment (PLOA) for office space within SEZ
2. Submit Form F (with annexures: PLOA, project report, entity documents) to Development Commissioner
3. Attend Unit Approval Committee (UAC) hearing → Obtain Letter of Approval (LOA)
4. Within 45 days, submit Letter of Acceptance and execute lease deed (within 6 months of LOA)
5. Prepare and submit Bond‑cum‑Letter of Undertaking (Form‑H) to claim SEZ benefits
6. After SEZ registration and licensing (NSDL portal), apply to IFSCA via SWIT portal for Certificate of Registration
7. Announce Commencement of Business with RoC and Development Commissioner post-first offshore service export

Documentation Required

Stage- MCA Incorporation

Stage- SEZ Approval

Stage- IFSCA Licensing

Post‑Incorporation Compliances

1. Opening of IFSC Bank Account

• Requirement: Open a current account in a bank located within GIFT IFSC (known as IFSC Banking Unit or IBU).
• Purpose: All international transactions, capital inflows/outflows, and operational receipts are routed through the IFSC bank account.
• Regulator: IFSCA (Banking) + RBI (for currency control compliance).[4]

2. Allotment of Physical Office Space

• Requirement: Occupy the office space allotted as per the Provisional Letter of Allotment (PLOA) and execute a registered lease.
• Purpose: This is a SEZ compliance condition—unit must operate physically from GIFT SEZ to avail benefits.
• Regulator: GIFT SEZ Development Commissioner.[5]

3. Filing Commencement of Business

• Requirement: File Form INC‑20A with Registrar of Companies (ROC) confirming that:
  • Paid‑up capital has been received.
  • Registered office is operational.
• Parallel Filing: Inform SEZ Development Commissioner that commercial operations have started.

4. Ongoing Mandatory Compliances

A. MCA Filings (Companies Act, 2013)

• Annual Return: Form MGT‑7
• Financial Statements: Form AOC‑4
• Event‑based filings: Director changes, share allotments, resolutions.

B. IFSCA Norms

• Compliance varies by sector (banking, insurance, fund management, fintech) but generally includes:
  • AML/KYC Compliance Reports
  • Cybersecurity and Resilience Reports
  • Capital Adequacy & Prudential Norms Reports

C. SEZ Reporting

• Quarterly/Annual Performance Reports to Development Commissioner
• BLUT (Bond‑cum‑Letter of Undertaking) Compliance – track duty‑free import/export
• Net Foreign Exchange (NFE) Monitoring

D. GST / IEC / RCMC (if applicable)

• GST Returns: Only for domestic transactions (exports are zero‑rated)
• IEC (Import Export Code) updates if engaged in goods or bullion trades
• RCMC (Registration Cum Membership Certificate) if in certain export sectors

KEY BENEFITS

1. Income Tax Incentives (Sec 80LA, Income‑Tax Act, 1961)

• Benefit: 100% income tax exemption for 10 consecutive years out of first 15 years of operations.
• Applicable to:
  • IFSC Banking Units (IBUs)
  • Fund Management Entities (FMEs)
  • Other notified IFSC units
• Condition: Must derive income solely from eligible IFSC activities and maintain proper[6] books.
  
  

2. GST Benefits

• Benefit: No GST on services provided to overseas clients (classified as exports of services).
• Condition: Recipient must be outside India; place of supply must be outside India.
• Impact: Major cost savings for cross‑border financial service providers.[7]

3. FEMA Relaxations

• Benefit: IFSC entities are permitted to transact freely in foreign currencies without typical FEMA restrictions.
• Examples:
  • Cross‑border capital raising
  • International trade settlement
  • Onboarding foreign clients without RBI approval
• Impact: Facilitates global business seamlessly from India.

4. Transaction‑Based Exemptions

• No STT (Securities Transaction Tax) on IFSC stock exchange trades
• No CTT (Commodities Transaction Tax) on IFSC commodity trades
• No DDT (Dividend Distribution Tax) for dividends paid by IFSC companies[8]

5. Infrastructure & Ease of Doing Business

• Plug‑and‑Play SEZ offices: Ready‑to‑use Grade A infrastructure within GIFT SEZ
• Single‑window clearances via IFSCA, avoiding multiple regulators
• Faster Approvals: MCA + SEZ DC + IFSCA coordination reduces processing time significantly

6. Regulatory Efficiency

• Single Unified Regulator: IFSCA combines the powers of SEBI, RBI, IRDAI, and PFRDA for IFSC operations.
• Impact: No need for multiple licenses from different agencies — speeds up approvals and reduces compliance cost.

7. Access to Global Capital & Markets

• Benefit: Entities can raise funds from global investors directly in foreign currency.
• Impact:
  • Easier listing on IFSC Exchanges (India INX, NSE IFSC).
  • Access to global investor base without heavy FEMA restrictions.

8. Liberalized Talent & Immigration Policies

• Benefit: Foreign professionals can be employed without typical Indian labor law restrictions.
• Impact:
  • Easier onboarding of global expertise in finance, law, technology.
  • Special visa and residency benefits for expatriates.
    
    

9. Cost Competitiveness

• Benefit:
  • Lower cost of operations compared to other global IFSCs like Dubai DIFC or Singapore MAS.
  • Subsidized lease rates for office spaces in SEZ zones.
    
    

10. International Arbitration & Dispute Resolution

• Benefit: GIFT IFSC houses international arbitration centers (e.g., Gujarat International Maritime Arbitration Centre).
• Impact: Quick resolution of disputes under international law frameworks.[9]
  
  

11. Digital‑First Ecosystem

• Benefit: All approvals, compliance filings, and clearances are completely online through GIFT City portal.
• Impact: Faster turnaround and lower administrative burden.

Taxation Overview (GIFT City IFSC)

GIFT IFSC offers one of the most favourable taxation regimes in India — carefully designed to attract global financial services.

A. Income Tax (Sec 80LA of Income‑Tax Act, 1961)

• Benefit:
  • 100% income tax exemption on profits derived from IFSC operations for 10 consecutive assessment years out of the first 15 years from commencement.
• Eligibility:
  • Must be an IFSC Banking Unit, Fund Management Entity, or other notified unit.
  • Income must be exclusively from eligible financial activities approved by IFSCA.

B. GST (Integrated Goods & Services Tax Act, 2017)

• Benefit:
  • No GST on services rendered to non‑resident clients (considered export of services).
• Condition:
  • Place of supply must be outside India.
  • Payment received in convertible foreign exchange.
• Example:
  • IFSC insurance broker providing risk coverage to a Dubai‑based client will have 0% GST liability.

C. Transaction‑Based Exemptions

• No STT (Securities Transaction Tax) for IFSC exchange transactions.
• No CTT (Commodities Transaction Tax) for commodity derivatives in IFSC.
• No Stamp Duty on transfer of securities traded on IFSC exchanges.
  (Impact: Cost competitiveness vs. other global IFSCs like Singapore, Dubai)

D. Transfer Pricing Compliance[10]

• Applicability:
  • All cross‑border related party transactions follow Sec 92–92F of the Income‑Tax Act.
• Example:
  • IFSC unit receiving services from its foreign parent must maintain Arm’s Length Pricing documentation.

CHALLENGES

A. Scope Restrictions

• Permitted Activities:
  • Exclusively financial/export‑oriented activities approved by IFSCA (banking, insurance, fund management, derivatives, leasing).
• Restriction:
  • Domestic‑only business is not permitted; income must be from cross‑border clients.
• Example:
  • A fintech in GIFT cannot serve retail Indian customers unless routed via IFSC‑approved structure.

B. Multiple Regulators

• Regulatory Bodies:
  • MCA → Incorporation, corporate law compliance.
  • SEZ DC → Space allotment, performance monitoring, BLUT compliance.
  • IFSCA → Sector‑specific licensing, operational rules.
• Impact:
  • While approvals are streamlined, there is coordination overhead.

C. Global Client Focus

• Foreign Currency Usage:
  • All core transactions in foreign currency; INR only for domestic expenses.
• Impact:
  • Firms must maintain FX compliance systems, which may be new for domestic‑focused businesses.

D. Paperwork & Timelines

• Approvals:
  • Unit Approval Committee (UAC) meeting schedules, Bond execution, Lease finalisation.
• Risk:
  • Delay in one step (e.g., PLOA execution) can hold up commencement.

Difference: Normal City vs GIFT City Incorporation

Conclusion

Incorporating a company in GIFT City offers a uniquely strategic advantage for businesses aiming to access international markets while operating from India. The combination of tax incentives under Section 80LA of the Income‑Tax Act, GST exemptions on offshore services, and exemptions from transaction taxes creates a highly cost‑efficient environment for cross‑border operations.

Beyond fiscal benefits, the single‑window regulatory framework under IFSCA, coupled with SEZ infrastructure and FEMA relaxations, streamlines incorporation, licensing, and ongoing compliance. This reduces operational friction and accelerates market entry compared to traditional incorporation in domestic cities.

For companies engaged in financial services, fintech, fund management, insurance, aircraft leasing, and other export‑oriented sectors, GIFT City provides an ecosystem that rivals global IFSCs such as Singapore, Dubai DIFC, and London Canary Wharf — but with lower costs and proximity to India’s talent pool.

In essence, incorporation in GIFT City enables companies to combine global reach, regulatory efficiency, and tax optimization, making it an ideal platform for scaling international operations from an Indian base.

[1] GIFT Gujarat Government Brochure http://api.giftgujarat.in/public/tool-guiedes-for-setting/DoingBusinessatIFSC.pdf?utm 

[2] https://ifsca.gov.in/Legal/Index?MId=TCce8MyOmco%3D&utm

[3] Section 80LA of Income Tax Act, 1961 & IFCA Official website https://ifsca.gov.in/Legal/Index?MId=TCce8MyOmco%3D&utm

[4] https://ifsca.gov.in/Legal/Index?MId=TCce8MyOmco%3D&utm

[5] https://api.giftgujarat.in/public/tool-guiedes-for-setting/DoingBusinessatIFSC.pdf?

[6] Section 80LA of Income Tax Act, 1961

[7] Section 16 of IGST Act, 2017 –  Export of Services

[8] https://ifsca.gov.in/Legal/Index?MId=TCce8MyOmco%3D&utm

[9]Gujarat International Maritime Arbitration Centre (GIMAC Official Website) https://gimac.in/

[10] Section 92–92F of the Income Tax Act, 1961

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