Part 18 addresses a question we're fielding increasingly often from fund sponsors: whether to structure a new fund domestically under SEBI, or within India's International Financial Services Centre (IFSC) at GIFT City under the IFSCA.
Q1. What's the fundamental regulatory difference between a domestic AIF and a GIFT City AIF?
A domestic AIF is registered with and regulated by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012. A GIFT City AIF is registered with and regulated by the International Financial Services Centres Authority (IFSCA) under the IFSCA (Fund Management) Regulations, 2022 — a structurally similar but separately administered framework.
Q2. Does a GIFT City AIF also need to register with SEBI?
No — funds set up in the IFSC operate under the IFSCA's regulatory jurisdiction specifically, distinct from SEBI's domestic AIF framework, though both regulators coordinate on overarching securities market policy.
Q3. In what currency does a GIFT City AIF typically operate?
GIFT City funds typically operate in foreign currency (commonly USD or other convertible currencies), which is one of their primary structural distinctions from domestic AIFs, which operate in Indian rupees.
Q4. Do GIFT City AIFs also use the Category I/II/III classification?
Yes — the IFSCA Fund Management Regulations, 2022 use a broadly similar categorisation structure to the domestic SEBI framework, though the specific conditions and permitted activities under each category can differ in detail.
Q5. Are GIFT City Category I/II AIFs eligible for pass-through taxation like domestic AIFs?
Yes, in principle — Category I/II AIFs registered under the IFSCA Fund Management Regulations, 2022 are generally recognised as eligible for the same pass-through taxation treatment available to domestic Category I/II AIFs under the Income-tax Act, subject to meeting the relevant conditions.
Q6. What specific tax incentives exist for GIFT City-based fund managers beyond standard pass-through treatment?
The broader IFSC tax regime includes additional incentives specific to the zone, designed to make GIFT City globally competitive as a fund domicile — the specific incentives applicable depend on the year and current notifications in force, and should be confirmed against current provisions given periodic updates to this framework.
Q7. Can a fund raise capital from both resident Indian investors and global investors through a GIFT City structure?
GIFT City structures are specifically designed to attract global investor capital, and can in principle accommodate a mix of investor types, though the specific investor eligibility and any resident-investor-related conditions should be checked against current IFSCA regulations for the specific fund category being used.
Q8. Can an existing domestic AIF migrate to a GIFT City structure?
This isn't a simple "conversion" — it typically involves setting up a new fund vehicle under the IFSCA framework, rather than re-registering the existing domestic entity. Sponsors considering this path should evaluate it as a parallel/successor fund structuring decision rather than a straightforward migration.
Q9. Why might a fund manager choose GIFT City over a more established offshore hub like Singapore or Mauritius?
GIFT City was specifically designed with a globally benchmarked regulatory approach to offer an India-linked fund domicile without requiring managers to set up entirely offshore, while still accessing many of the currency, investor-base, and tax advantages that traditionally drove managers to offshore hubs.
Q10. Does a GIFT City fund face different custodian or banking requirements than a domestic AIF?
Yes — GIFT City funds typically operate through IFSC Banking Units and other IFSC-specific financial infrastructure, distinct from the domestic banking and custodian arrangements a SEBI-registered AIF would use.
Q11. What compliance obligations does a GIFT City AIF have that a domestic AIF doesn't?
The reporting framework, filing portal, and specific disclosure formats under the IFSCA differ from SEBI's domestic AIF reporting requirements (including the SEBI Intermediary Portal-based Annual/Quarterly Activity Report structure) — fund managers operating a GIFT City vehicle need a compliance calendar built specifically around IFSCA requirements, not a repurposed domestic AIF calendar.
Q12. When does it make more sense to stay domestic rather than set up in GIFT City?
Where the fund's investor base is predominantly resident Indian investors, the strategy is entirely India-focused with rupee-denominated flows, and the manager values the more established precedent and track record available under the SEBI AIF framework, a domestic structure often remains the simpler and more appropriate choice.
Advising on Jurisdiction Before Entity Formation
Choosing between domestic and GIFT City registration is a structuring decision with long-term tax, currency, and operational consequences. We advise fund sponsors on this choice before entity formation begins.
This FAQ is for general informational purposes and does not constitute regulatory or tax advice specific to any fund's circumstances.