GIFT City Updates – January 2025

IFSCA issues a consultation Paper on SPV Framework under IFSCA (Fund Management) Regulations, 2022

International Financial Services Centres Authority (“IFSCA”) has issued a consultation paper with respect to Special Purpose Vehicle (“SPV”) under IFSCA (Fund Management) Regulations, 2022 (“FME Regulations”). The consultation paper proposes the operationalisation of SPV under the controlling scheme in order to facilitate the growth of funds industry by allowing a scheme to take leverage at SPV level.

Key Provisions:

1. Structure: The consultation paper proposes to have a similar constitution of SPV as applicable under Regulation 17 of the FME Regulations, i.e., appointment of fiduciaries, applicability of fit and proper requirements and compliance with Code of Conduct. The SPV can be open-ended or close-ended depending on the nature of controlling scheme and the term of SPV should be equal to that of controlling scheme.
2. Filing of Private Placement Memorandum: SPV will not be required to file Private Placement Memorandum with IFSCA. Apart from that all the requirement as provided in the circular dated April 5, 2024 will be applicable to SPV. In addition to this, a term sheet has to be filed within 21 working days from the date of making the investment.
3. Eligible Investors: Controlling scheme, its current investors or affiliates of such investors and other investors are eligible investors.
4. Permissible Investments: SPV will be formed for making investment into a single portfolio company, however, it would be permissible for SPV to hold securities of other entities due to any restructuring or corporate actions. SPV can be used for making co-investment, undertaking leverage or ring-fencing investments of the controlling scheme.
5. Leveraging Limit: SPV shall be bound by overall leverage limits applicable to the controlling scheme.
6. Disclosures to investors: SPV has to comply with all the disclosures requirements provided under the FME Regulations. In case of setting up SPV, existing investors are to be informed before filing the term sheet.
7. Applicability of the other provisions of FME Regulations: Provisions with respect to valuations, computation of NAV, and reporting regulations under Regulation 119(1), 119(2)(a), (b), (c), (e), (g) and (h) are applicable to SPV as well. However, FME is not required to make any minimum contribution in SPV but must have decision-making and controlling authority of SPV. All other obligations provided under FME Regulations are also applicable to SPV.
8. KYC Requirements: FME is required to conduct Know your customer (KYC) for any new investor of the SPV.
9. Other Conditions: There must appropriate mechanism provided in the SPV level agreement for resolution of disputes between controlling scheme, other shareholders, beneficiaries, members and partners. The other shareholders, beneficiary, member or partner of SPV shall not exercise any rights which prevent the controlling schemes for complying with other regulatory requirements.

Union Budget 2025-26 Introduces Key Reforms to Enhance Investments in GIFT IFSC

In the union budget 2025-26 presented on 1st February, 2025, FM Nirmala Sitharaman has announced several measures to incentivise investments, employment and off shore funding at GIFT’s International Financial services.

Some of the key announcements were:

1. Extension of the deadline for businesses to commence operations in GIFT City until March 2030 to qualify for tax benefits, a move intended to provide long term certainty for investors and encourage sustained growth within IFSC.
2. Extend the existing re-location regime to Exchange Traded Funds (ETFs) to increase the off-shore fund relocation to IFSC. The relocation of an original fund to a resultant fund will also be considered a tax-neutral transaction. This will attract several schemes to relocate from other offshore locations like Mauritius & Singapore to GIFT City. 
3. Effective April 1, 2025, amendments to Clause 10D of Section 10 will provide tax exemptions on life insurance proceeds received by non-residents from IFSC-based insurance offices, without any conditions. This change broadens the scope of tax benefits for non-resident investors.
4. In addition to the existing tax exemption on income earned by NRIs from derivative trades or participatory notes, the benefit will now extend to investments made through Foreign Portfolio Investors (FPIs) based in GIFT City.
5. IFSC-based treasury centres, which handle foreign exchange, risk management, and asset management, are currently subject to deemed dividend provisions. However, proposed amendments will exempt them from these provisions for advances or loans between group entities, subject to specific criteria.
6. IFSC-based units and non-residents in the ship leasing business will be exempt from capital gains tax on the transfer of equity shares of IFSC units engaged in ship leasing. Additionally, dividends paid by one IFSC unit in ship leasing to another will also qualify for exemption.

The proposed tax incentives and regulatory simplifications will attract global investors, fund managers, and businesses, enhancing India’s financial ecosystem. These measures position GIFT City as a competitive and business-friendly hub on the global financial landscape.