GIFT City Fund Management: IFSCA Regulations, Structures and Tax (2026)

GIFT City IFSC lets fund managers set up and run funds under the IFSCA (Fund Management) Regulations, 2025. The rules have moved quickly. The 2025 Regulations replaced the 2022 framework, and an amendment in July 2025 added third-party fund management. The IFSCA (Fund Management) (Amendment) Regulations, 2026, in force from 30 January 2026 according to IFSCA’s consolidated text, changed key managerial personnel (KMP) eligibility, placement memorandum validity, open-ended scheme investments and custodian timelines. The IFSCA (Fund Management) (Second Amendment) Regulations, 2026, in force from 10 September 2026, then revised rules on FME contributions, interim investments, NAV disclosure and valuation. IFSCA has also kept issuing circulars, most recently (at the time of this review) on differential distribution in venture capital and restricted schemes (25 September 2026) and on the deadline for KMPs and employees to complete the certification course (29 September 2026). Always work from the current consolidated text (amended up to 10 September 2026 at the time of writing) and the circular list on IFSCA’s fund-management page. Consultation papers are proposals only and do not change the rules until IFSCA notifies them.

Tax is a separate layer. A manager’s own business income, a scheme’s income and an investor’s income can each be taxed differently, so they should never be treated as having the same outcome.

FME categories and net worth

A Fund Management Entity (FME) must be authorised or registered with IFSCA under one of three categories. The minimum net worth below is from the Second Schedule to the Regulations, which also allows IFSCA to specify a different amount.

Category names do not settle what a given strategy or product can do. Check the permitted activities, scheme type, investor eligibility and marketing restrictions for the registration actually granted.

Scheme structures

Depending on its category, an FME can set up or manage venture capital schemes, restricted schemes (categorised as Category I, II or III), retail schemes and ETFs, Family Investment Funds, and portfolio management services. A few current rules are worth knowing:

• Minimum corpus: venture capital and restricted schemes must reach a minimum corpus of USD 3 million, reduced from USD 5 million under the 2025 Regulations. An open-ended restricted scheme can begin investing once it has raised USD 1 million, but must reach USD 3 million within 12 months of its PPM being taken on record, extendable in six-month blocks on payment of fees.
• Open-ended restricted schemes: since the 2026 amendment, they may invest in unlisted securities only after reaching the USD 3 million minimum corpus. The 25% cap on investment in unlisted securities still applies.
• Placement memorandum (PPM) validity: 12 months from when IFSCA takes it on record. Ordinary extensions, sought while the PPM is still valid, are now available in repeated six-month blocks at 25% of the fresh filing fee for the first extension and 50% for each later one. Expired PPMs follow a separate procedure under IFSCA’s circular of 11 September 2026. IFSCA may extend an expired PPM if the scheme has not materially changed, at 50% of the fresh filing fee for each six-month block plus a late fee, which the FME must bear itself. IFSCA can still act against the FME for anything done while the PPM had lapsed.
• Custodians: retail schemes, open-ended restricted schemes and any scheme with assets under management above USD 70 million must appoint an independent custodian in the IFSC, unless the law where the securities are held requires a local custodian. The 2026 amendment gives a 24-month transition window from its commencement on 30 January 2026, during which an independent custodian regulated by a financial sector regulator in India or another jurisdiction may be used.
• KMP: KMPs still need five years’ relevant experience, but the 2026 amendment widened the “eligible institutions” where it can be gained, including regulated financial entities and CA, CS, cost accountant and advisory firms. It also added a certification route needing three years’ post-qualification experience for the Principal Officer and other KMPs, and two years for the Compliance Officer. IFSCA specified the certification course by circular on 1 April 2026, and its circular of 29 September 2026 extended the deadline for completing it to 31 December 2026.

Minimums, investor eligibility, valuation, leverage, custody and reporting differ by scheme type. “Retail” does not mean open to everyone without restriction.

Third-party fund management

Since the July 2025 amendment, a Registered FME that has obtained IFSCA’s specific authorisation can launch and manage schemes on behalf of a third-party fund manager. This lets a foreign manager use the IFSC platform without building a full local operation, but it is a regulated arrangement, not informal outsourcing. Key features as notified:

• Only a Registered FME (Non-Retail or Retail) can offer the service, and only after IFSCA authorisation.
• The FME must hold an additional USD 500,000 of net worth on top of the minimum for its category.
• The third-party manager must be registered with or regulated by a financial sector regulator in its home jurisdiction.
• The third-party fund-management framework does not apply to schemes where the FME’s parent entity or an associate provides fund-management-related support or advice to the FME, as specified under Regulation 107M.
• The FME remains fully liable for all obligations under the framework, including compliance and investor protection. The third-party manager must indemnify the FME, and the PPM must disclose the arrangement, with ring-fencing and grievance-redressal arrangements in place.
• Schemes are restricted schemes with a corpus ceiling of USD 50 million.
• Each scheme needs a dedicated Principal Officer, and compliance officer arrangements differ for Retail and Non-Retail FMEs.
• IFSCA has issued a procedure circular (16 January 2026) on filing scheme applications under these arrangements.

Check eligibility, application steps, scheme limits, governance and fees against the current consolidated Regulations before proposing the structure. The contract between the FME and the third-party manager does not move the FME’s regulatory responsibilities.

Tax: look at the manager, the fund and the investor separately

1. The fund manager

A qualifying IFSC unit can claim a 100% deduction on income from its approved business activities under Section 147 of the Income-tax Act, 2025, for 20 consecutive tax years out of 25 (as amended by the Finance Act, 2026), followed by a concessional 15% rate on business income. It is not a holiday on every receipt of every FME: the unit must qualify, the claim needs an accountant’s report, and units starting on or after 1 April 2026 must not be formed by splitting up or transferring an existing Indian business. Our overview of the GIFT City IFSC tax framework explains Section 147 in full.

2. The scheme or fund

Schedule VI to the Income-tax Act, 2025 excludes specified income of eligible persons, including specified funds, but each entry has its own conditions. The Finance Act, 2026 aligned the definition of “specified fund” with the former Section 10(4D), and the investment division of an offshore banking unit qualifies as a specified fund only if it commences operations by 31 March 2030. Being located in GIFT City, or having non-resident investors, does not by itself make a fund’s income exempt.

3. Investors and distributions

An investor’s tax depends on residence, the type of income, the fund’s classification, withholding and treaty entitlement. Interest, dividends, capital gains and distributions should each be reviewed. Do not assume a universal concessional rate or a blanket exemption for non-residents; identify the exact provision, the eligible recipient and the conditions.

4. Offshore funds managed from India, including the IFSC

An offshore fund managed by a fund manager in India may be protected from being treated as having a business connection in India, or as resident in India, if the conditions in Section 9(12) and Schedule I to the 2025 Act are met. The fund must meet conditions such as non-residence, diversification, investor base and minimum remuneration to the manager. The manager must not be an employee or connected person of the fund, must be registered as a fund manager or investment adviser, must act in the ordinary course of its business, and, with its connected persons, must not be entitled to more than 20% of the fund’s profits. The manager does not have to be in an IFSC. But where it is located in an IFSC and began operations by 31 March 2030, the Central Government may relax or modify some of these conditions by notification. This is a summary, not a complete eligibility test, so check the fund and the manager against the full text of Schedule I. Our guide for non-residents and foreign entities covers this in more detail.

5. Other taxes

GST, STT, CTT and stamp duty should be checked independently. Specific zero-rating or exemptions may apply to some supplies or transactions, but they do not extend to every service, distribution or trade of an IFSC fund. Also, the pass-through treatment of domestic Category I and II AIFs should not be assumed to apply in the same way to IFSC schemes.

Compliance areas to track

• Registration category, net worth maintenance and permitted activities.
• Scheme filings, PPM or offer document validity, investor eligibility, and marketing and website requirements.
• Principal Officer, Compliance Officer and other KMP: eligibility, appointment, intimation and certification.
• Valuation, custody, audit, risk management, records and periodic filings for each scheme type.
• Income-tax returns and reports, claim conditions, withholding tax and GST at manager, scheme and investor level.

These obligations change through amendments and circulars. Link each calendar item to the regulation or circular it comes from, and refresh the list before launching a scheme or making a material change. AskSolique provides cross-regulatory research across IFSCA materials, income-tax law and FEMA; the final structure should still be tested against the client’s facts and the primary sources.

Important: This article is a general overview, not legal, tax or investment advice. Eligibility and outcomes depend on current law, the entity and transaction facts, and compliance with all applicable conditions. Verify the latest primary sources before acting.

Primary sources and further reading

These official sources are starting points. Regulations and circulars change, so check the version that applies to your transaction and tax year.

• IFSCA: Fund Management page (regulations and circulars)
• IFSCA (Fund Management) Regulations, 2025, as amended up to 10 September 2026
• IFSCA circular on extension of expired placement memoranda (11 September 2026)
• Income-tax Act, 2025: Section 147 (this page may still show the pre-amendment 10-out-of-15-year text; see the Finance Act, 2026)
• Finance Act, 2026 (No. 4 of 2026), Gazette of India, 30 March 2026: amends Sections 147 and 218
• Income-tax Act, 2025: Schedule VI
• Income Tax Department: Budget 2026 FAQs (explains the Finance Act, 2026 changes to Sections 147 and 218)
• Foreign Exchange Management (IFSC) Regulations, 2015