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IFSCA - Regulations, Listing and Compliances · International Financial Services Centres: An Introduction

Regulatory Framework and Business Permitted in IFSC

Updated 11 October 2026 · Fact-checked

An International Financial Services Centre (IFSC) is a centre set up under section 18 of the SEZ Act, 2005. The IFSCA Act, 2019 applies to it. The Authority regulates financial products, services and institutions there, exercising powers of sector regulators, and transactions are in specified foreign currency.

Understand Regulatory Framework and Business Permitted in IFSC

Start with the basic idea. An IFSC is a special zone where units offer financial services mostly in foreign currency. GIFT City is the example you know. The law behind it has two layers: the Special Economic Zones Act, 2005 creates the centre, and the IFSCA Act, 2019 regulates the financial business done inside it.

Section 2 of the IFSCA Act says the Act applies to IFSCs set up under section 18 of the SEZ Act. Section 3(1)(g) defines an IFSC the same way, whether set up before or after the Act began. So the SEZ Act is the gateway. The IFSCA Act is the regulatory rulebook.

What can be done there? The Act defines financial product in section 3(1)(d): securities, contracts of insurance, deposits, credit arrangements, foreign currency contracts (other than those settled immediately as plain currency exchange), and any product notified by the Central Government. Financial service in section 3(1)(e) covers buying, selling or subscribing to a financial product, accepting deposits, safeguarding and administering assets, effecting insurance contracts, managing assets, running an investment scheme, maintaining ownership records, underwriting, credit information, payment services, arrangements, advice and solicitation, and any service notified. A financial institution is a unit set up in an IFSC that renders financial services for any financial product (section 3(1)(c)).

So banking units, capital market intermediaries, insurers, fund managers, and similar units all fit within these definitions. Do not memorise a fixed list of entities from the Act. The Act gives the broad definitions. Specific entity types and their conditions come from IFSCA regulations.

The regulatory power sits in section 13. Powers of an appropriate regulator (those listed in the First Schedule, under the Acts named there) are exercised in an IFSC by the Authority, for these products, services and institutions. This applies despite any other law. Section 31 lets the Central Government, by notification, disapply other Central Acts or apply them with modifications to IFSC business. Section 20 requires every transaction of financial services in an IFSC to be in a foreign currency specified by regulations.

Key rules to remember

Application of the Act (s. 2)
IFSCA Act applies to IFSCs set up under section 18 of the SEZ Act, 2005
This is the link between the SEZ Act and the IFSCA Act.
Financial product (s. 3(1)(d))
securities; insurance contracts; deposits; credit arrangements; foreign currency contracts (not immediately settled exchange); notified products
Learn the six heads. The last one needs a Central Government notification.
Financial institution (s. 3(1)(c))
unit in an IFSC rendering financial services for any financial product
It must be a unit set up in an IFSC.
Duty of the Authority (s. 12(1))
develop and regulate financial products, financial services and financial institutions in IFSCs
Section 12(2) adds permitted-before-commencement items, notified items, recommending new items to the Central Government, and prescribed functions.
Transfer of regulatory powers (s. 13(1))
powers of the First Schedule regulators under their Acts are exercised by the Authority in IFSCs
Applies notwithstanding any other law, to the extent it relates to the regulation of products, services or institutions.
Modification of other Acts (s. 31)
Central Government notification: not apply, or apply with exceptions, modifications, adaptations
Draft must be laid before Parliament for 30 days. The power excludes provisions on making rules or regulations.
Currency of transactions (s. 20)
every financial services transaction in an IFSC is in the foreign currency specified by regulations, in consultation with the Central Government
Penalties are collected in foreign currency equivalent (s. 13(5)) but credited to the Consolidated Fund of India in rupees (s. 13(6)).

How to solve Regulatory Framework and Business Permitted in IFSC questions

Use this order for any case or theory question on business permitted in an IFSC.

  1. 1Identify the activity in the facts and ask whether it is a financial product, a financial service, or both under section 3.
  2. 2Check the location: is the unit in an IFSC set up under section 18 of the SEZ Act? If not, the IFSCA Act does not apply (section 2).
  3. 3Name the regulator: the Authority exercises the powers of the relevant First Schedule regulator under section 13(1).
  4. 4Check whether any Central Government notification under section 31 modifies or disapplies another law for this business.
  5. 5Check the currency rule under section 20 and any foreign currency penalty point under section 13.
  6. 6Say that the specific entity type and its conditions come from IFSCA regulations, and apply them if the question supplies them.
  7. 7Conclude clearly: permitted or not, who regulates, and what compliance follows.

Quickest way: Four-question check

When to use it: When time is short and the question asks if an activity or entity falls under IFSCA.

  1. Where: IFSC under SEZ Act section 18?
  2. What: financial product or financial service under section 3?
  3. Who: Authority via section 13, or notified exception via section 31?
  4. How: foreign currency under section 20 and regulation-specific conditions.

Common mistakes in Regulatory Framework and Business Permitted in IFSC

  • Saying the SEZ Act regulates financial services in an IFSC.

    Both Acts are linked to GIFT City, so students merge them.

    Fix: The SEZ Act sets up the centre. The IFSCA Act regulates the financial products, services and institutions.

  • Listing entity types as if the IFSCA Act names them.

    Students recall banks, insurers and fund managers from practice.

    Fix: Cite the section 3 definitions for the Act, and attribute entity-wise conditions to IFSCA regulations.

  • Forgetting the exclusion in foreign currency contracts.

    Students learn the heads of financial product in short form.

    Fix: Write 'foreign currency contracts other than contracts to exchange one currency for another that are to be settled immediately'.

  • Assuming the Authority has no power over other regulators' laws.

    Students think RBI, SEBI and others keep control inside IFSCs.

    Fix: State section 13(1): their powers under the Acts in the First Schedule are exercised by the Authority in IFSCs, for those products, services and institutions.

  • Saying penalties are paid in rupees and credited to the Authority Fund.

    Mixing sections 13 and 15.

    Fix: Penalties are collected in foreign currency equivalent and credited in rupees to the Consolidated Fund of India. The Authority Fund holds grants, fees and charges.

Worked examples

Example 1

Aurum Capital Ltd proposes a unit in GIFT City to underwrite bond issues and advise investors on buying them. Is this business within the IFSCA Act, and who regulates it?

Show the solution
  1. Provision: section 3(1)(e)(ix) lists underwriting the issuance or subscription of a financial product. Section 3(1)(e)(xiii) lists advice on buying or subscribing to a financial product.
  2. Facts: bonds are securities, which are a financial product under section 3(1)(d)(i).
  3. Location: GIFT City is an IFSC set up under the SEZ Act, so the Act applies under section 2, assuming it is set up under section 18.
  4. Regulator: under section 13(1), the Authority exercises the powers of the relevant First Schedule regulator in the IFSC for these services.
  5. Currency: transactions must be in the foreign currency specified by regulations (section 20).

Answer: Yes. Underwriting and advice on securities are financial services, so the unit would be a financial institution regulated by the Authority. Specific registration conditions come from IFSCA regulations.

Example 2

A notification is proposed to apply a Central Act to insurance business in an IFSC with modifications. Explain the procedure and its limit.

Show the solution
  1. Provision: section 31(1) lets the Central Government notify that provisions of another Central Act, or its rules, regulations or orders, shall not apply or shall apply with exceptions, modifications and adaptations to financial products, services or institutions in an IFSC.
  2. Limit: the power excludes provisions relating to the making of rules or regulations.
  3. Procedure: under section 31(2), the proposed notification is laid in draft before each House of Parliament for a total of 30 days.
  4. Outcome: if both Houses disapprove, it is not issued. If both agree on a modification, it is issued in that modified form.

Answer: The Central Government may do so by notification under section 31, after laying the draft before Parliament for 30 days. Parliament can block or modify it. The rule-making provisions of the other Act cannot be altered this way.

Exam tips

  • Quote section numbers for definitions (3), regulator powers (13), modification power (31) and currency (20).
  • Write in three parts: provision, facts, conclusion. Keep the conclusion to one clear sentence.
  • Do not name an entity type's capital or eligibility limits unless you are sure. Refer to the relevant IFSCA regulations instead.
  • Draw the SEZ Act versus IFSCA Act distinction in one line when the question mentions GIFT City.
  • For compliance questions, mention the foreign currency rule for transactions and penalties.

Practice questions from International Financial Services Centres: An Introduction

Regulatory Framework and Business Permitted in IFSC: frequently asked questions

What financial services are permitted in GIFT IFSC?

The IFSCA Act defines financial services broadly in section 3(1)(e). It covers dealing in financial products, accepting deposits, asset management, insurance, underwriting, payment services and advice, among others. Specific permitted entities are set by IFSCA regulations.

How does the SEZ Act relate to the IFSCA Act?

An IFSC is set up under section 18 of the SEZ Act, 2005. The IFSCA Act then applies to such centres under its section 2. The first creates the centre, the second regulates the financial business in it.

Can other laws be changed for IFSC business?

Yes. Under section 31, the Central Government can notify that other Central Acts do not apply, or apply with modifications, to financial business in an IFSC. The draft must be laid before Parliament for 30 days.

Which currency is used in an IFSC?

Section 20 requires every financial services transaction in an IFSC to be in a foreign currency specified by regulations, in consultation with the Central Government.