The International Financial Services Centre (IFSC) at GIFT City in Gujarat offers fintech lending platforms a unique regulatory environment with significant tax advantages. Finance companies established in GIFT City under the IFSC Authority (Finance Company) Regulations, 2021 provide a structured framework for lending activities. This guide analyses the IFSC finance company rules and their application to fintech lending platforms.
The IFSC Finance Company Framework
Regulatory Framework
Finance companies in GIFT City are regulated under the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019). The regulations were notified by IFSCA on 25th March 2021 and provide the framework for the establishment and operation of all finance companies in GIFT City.
Definition of Finance Company
Regulation 2(1)(e) of the IFSCA (Finance Company) Regulations, 2021 defines "Finance Company" as a company incorporated in the IFSC and registered with the Authority to undertake the business of:
- Lending in the form of loans, commitments and guarantees, credit enhancement, securitisation, or financial lease
- Factoring and forfaiting of receivables
- Functions of Global or Regional Corporate Treasury Centre such as borrowings, lending, hedging of currency or commodity risk or investments, cash management, structured credit, intra group financing, financial budgeting and similar other such treasury services and activities
Definition of Finance Unit
Regulation 2(1)(f) defines "Finance Unit" as a unit established in an IFSC by a person resident outside India (other than a company) to undertake finance company activities.
Permitted Activities for Fintech Lending Platforms
Core Lending Activities
Fintech lending platforms in GIFT City can undertake:
- Lending through loans, commitments, and guarantees
- Credit enhancement and securitisation
- Financial leasing
- Trade finance solutions including factoring and forfaiting of receivables
Treasury and Ancillary Activities
Finance companies can also undertake:
- Borrowing and lending operations
- Hedging of currency or commodity risk
- Investments, cash management, and structured credit
- Intra-group financing and financial budgeting
- Global or Regional Corporate Treasury Centre (GRCTC) functions
Minimum Capital Requirements
A Finance Company in GIFT IFSC must maintain minimum capital in the form of owned funds — USD 200,000 for GRCTC activities. The framework requires detailed declarations to ensure that individuals associated with the company meet the "fit and proper" standards prescribed by IFSCA.
Tax Benefits for IFSC Finance Companies
Section 147 — Deduction for IFSC Units
Section 147 of the Income-tax Act, 2025 provides a deduction of 100% of the income of a unit of an International Financial Services Centre. The deduction is allowed for twenty consecutive tax years out of twenty-five years beginning from the relevant tax year, at the option of an assessee.
Section 218 — Tax on Business Income of IFSC Unit
Section 218 provides that income of the nature referred to in Section 147(3) shall be taxed at the rate of 15% — a concessional rate for IFSC units.
Section 147(3) — Income Eligible for Deduction
The income eligible for deduction includes:
- Income from an Offshore Banking Unit located in a Special Economic Zone
- Income from the business activities referred to in Section 6(1) of the Banking Regulation Act, 1949
- Income from the approved business activities of any Unit of an IFSC
- Income from transfer of an asset being, an aircraft or a ship, leased by a unit referred to in clause (c) if such unit commenced its business operations by 31st March 2030
Rule 126 — Conditions and Activities
Rule 126 of the Income-tax Rules, 2026 prescribes the conditions and activities for a finance company located in any IFSC for the purposes of Section 177. The interest being paid by such finance company, being the borrower, in respect of any debt issued by a non-resident, shall be in foreign currency.
Structuring Fintech Lending Platforms in GIFT City
1. Determine the Appropriate Vehicle
- Finance Company: For entities seeking a corporate structure with flexibility to undertake lending, treasury, and other financial activities
- Finance Unit: For entities outside India seeking to establish a presence
- NBFC in GIFT City: Non-bank finance companies, both local and global, can now start operations in GIFT City and are allowed to offer the whole range of services — loans, exotic derivative trades, investment banking, and third-party product sales
2. Obtain Regulatory Approvals
- Registration with IFSCA under the Finance Company Regulations
- SEZ IFSC unit license from the Office of Administrator (IFSCA)
- Any other regulatory approvals as required
3. Ensure Compliance
- Comply with IFSCA regulations
- Comply with SEBI regulations (if applicable)
- Comply with DTC provisions
- Comply with transfer pricing rules (if applicable)
4. Optimise Tax Structure
- Leverage the 15% tax rate under Section 218
- Leverage the 100% deduction under Section 147 for eligible income
- Consider treaty benefits (if applicable)
- Consider GAAR implications
Practical Compliance for Fintech Lending Platforms
1. Maintain Substance
- Ensure the vehicle has genuine substance in GIFT City (office, employees, decision-making)
- Avoid "shell" structures
2. Comply with Regulatory Requirements
- File returns with IFSCA
- Comply with reporting requirements
- Maintain proper records
3. File Tax Returns
- File returns with the income-tax authorities
- Claim the deduction under Section 147
- Calculate tax at 15% under Section 218
4. Monitor Compliance
- Regularly monitor compliance with regulatory and tax requirements
- Update documentation as necessary
Consequences of Non-Compliance
Loss of Tax Benefits
Failure to comply with the conditions may result in loss of the tax benefits under Sections 147 and 218.
Regulatory Action
Non-compliance with IFSCA regulations may result in regulatory action.
Penalties
Non-compliance with tax provisions may result in penalties under the DTC.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on IFSC finance company structuring for fintech lending platforms. Our direct tax experts help fintech companies understand the IFSC framework, structure compliant vehicles, and navigate the regulatory framework. We assist in vehicle selection, regulatory approvals, and tax optimisation.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on IFSC finance company structuring or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex IFSC finance company framework for fintech lending platforms requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Vehicle Structuring: Assistance with finance company or finance unit structuring
- Regulatory Approvals: Guidance on IFSCA and other approvals
- Tax Optimisation: Assistance with tax planning and compliance
- Representation: Representation before regulatory and tax authorities
Contact us for expert legal guidance on your IFSC finance company matters.