SEZ Rules amended to ease regulatory burden for funds in GIFT-IFSC

The Ministry of Commerce and Industry, Government of India, has notified the Special Economic Zones (Fourth Amendment) Rules, 2026 (‘Amendment Rules’), introducing changes to the Special Economic Zones Rules, 2006 (‘SEZ Rules’). Some of the changes made by the Amendment Rules are relevant for funds and Fund Management Entities (‘FME’) established in an International Financial Services Centre (‘IFSC’) and are discussed below.

Documentation of premises occupied by funds

Rule 18 of the SEZ Rules prescribes the requirements for considering proposals to establish a unit in a Special Economic Zone (‘SEZ’). Among other conditions, the availability of space and infrastructure support must be confirmed by the developer through a provisional offer of space. The existing framework also contemplates the execution and submission of a lease deed within a specific period after receiving approval from the SEZ Authority for the establishment of an SEZ unit. Therefore, until now, when setting up a fund in an IFSC, a Provisional Letter of Allotment (‘PLOA’) from the developer addressed to the fund had to be submitted to the SEZ Authority when applying for registration for such fund, even if the same developer would have issued a PLOA to the fund’s FME and also signed a lease deed with the FME, for the same address.    

The Amendment Rules have now amended Rule 18 by providing the following:

First, the PLOA issued by the developer for an FME can be used to apply to the SEZ Authority for registration of the fund. Secondly, the lease deed executed by the FME of the fund will be considered to be the lease deed of the fund. It will no longer be necessary for any fund to obtain a PLOA from the relevant developer or enter into separate lease deeds with such developer since it is taken for granted that the fund will be occupying the same space as the FME.

These changes will reduce paperwork and compliance costs for funds being launched in GIFT-IFSC.

Determination of the commencement of service activity

Rule 19 of the SEZ Rules regulates the issuance of a letter of approval (‘LOA’) by the Development Commissioner to a unit set up in an SEZ. The LOA is issued in Form G and units are required to commence service within one year from the date of its issuance, failing which the LOA becomes invalid. Subject to compliance with this rule, the LOA will remain valid for a period of five years from such date of commencement of service. Therefore, for an FME or a fund in an IFSC, the date of commencement of services is relevant to determine the validity and term of the LOA issued to the unit.

Prior to the notification of the Amendment Rules, there was considerable ambiguity in the funds industry regarding the date on which the FME/fund commences its service activities, resulting in different practices being adopted by various FMEs and funds. For instance, the date of signing the first contribution agreement with an investor was considered to be the date on which the fund commenced the provision of services. For FMEs, the date of the first invoice issued to a fund managed by the FME was considered to be the relevant date on which the FME commenced the provision of services.

The Amendment Rules have now resolved this uncertainty by introducing paragraph (i) after the third proviso to sub-rule (4), which states as follows:

 ‘Provided also that for a Unit set up in an International Financial Service Centre, grant of the first recognition, registration, license or authorisation, by whatever name called, in its final form, by the International Financial Services Centres Authority, shall be considered as commencement of service activity and the date of commencement shall be the date of grant of such recognition, registration, license or authorisation.’

Therefore, the date of the acknowledgement issued by IFSCA to a fund established in an IFSC when taking the fund’s PPM on record will be the date of commencement of service activity by such fund. In the context of a FME, the date on which the certificate of registration is issued by IFSCA to such FME will be the date of commencement of service activity by such FME.

The Amendment Rules further clarify that the commencement date determined on this basis will remain unchanged even if the recognition, registration, licence or authorisation on which the determination was based subsequently ceases to be valid.

Renewal of the Letter of Approval

Rule 19(6B) prescribes a set of criteria for renewal of a Unit's Letter of Approval (‘LoA’) by the SEZ Authority, which includes assessment of export performance, employment generated and compliance with applicable laws. Statutory payment defaults and any unauthorised activity undertaken by the Unit will also be taken into account by the development commissioner before renewing the Letter of Approval of the SEZ unit.

The Amendment Rules have now inserted a new proviso to Rule 19(6B) which applies only to units in an IFSC, which requires the SEZ authority to take into account the recommendations of the IFSCA in relation to the following criteria while deciding the renewal of the LoA of a unit established in an IFSC:

1. Employment generated by the unit;

2. Instances of violation of applicable statutes relating to the functioning of the unit; and

3. Defaults, if any, in statutory payments.

Until now, even for units in an IFSC, the IFSCA did not have any formal role in the renewal of the LOA by the SEZ Authority. Subsequent to the Amendment Rules, the IFSCA will have to formally support the renewal of the LOA. In reality, this new rule does not move the needle much, since in GIFT-IFSC, the IFSCA and the SEZ Authority have been working together as a single team.

Exemption from the annual performance reporting requirement

Rule 22 of the SEZ Rules sets out the conditions governing the availment of exemptions, drawbacks and concessions by SEZ units and developers. Under Rule 22(3), a unit is required to submit an Annual Performance Report (‘APR’) in Form I to the Development Commissioner, who places the report before the Approval Committee for consideration.

Further, SEZ units are also required to file the Service Exports Reporting Form (‘SERF’) on a monthly basis, which contains a summary of the export invoices issued by the unit during the relevant month. Since funds established in the IFSC do not export, they are required to submit a NIL SERF for each month. Usually, the FME shows the invoice-wise transaction details in the FME’s SERF filing.

The export data reported through SERF filings during the financial year is subsequently aggregated and automatically populated in the revenue details section of the APR. In this regard, various FMEs and ancillary service providers had highlighted practical challenges during discussions with the IFSCA Administrator (SEZ Authority), noting that funds established in the IFSC do not export goods and are therefore required to file NIL SERFs on a recurring basis. Accordingly, it was represented that IFSC funds should be exempted from the requirement of filing SERFs and APRs, or that a simplified reporting mechanism be introduced, in order to reduce the compliance and reporting burden on funds managed by FMEs where such filings do not serve a substantive regulatory purpose.

The Amendment Rules expressly exempt funds from the APR submission requirement prescribed under Rule 22(3). However, there has been no change in the reporting requirement for filing the SERF by the Funds established in IFSC.

Conclusion

The Amendment Rules are a welcome step towards simplifying the SEZ regulatory framework for funds and FMEs established in the IFSC. By recognising the FME's provisional offer of space and lease deed as sufficient for the purposes of funds managed by it, the amendments remove duplicative documentation requirements and streamline the fund registration process, particularly for FMEs managing multiple fund vehicles.

Further, the exemption granted to IFSC funds from the requirement of filing Annual Performance Reports reduces a recurring compliance burden that often had limited practical relevance for such entities. However, the continued requirement to file monthly SERFs, notwithstanding the exemption from APR filing, suggests that the compliance simplification exercise remains an ongoing effort. A regulatory consideration may be warranted to evaluate whether a simplified reporting mechanism can also be introduced for SERF filings.

Overall, the changes shall enhance ease of doing business, reduce compliance friction and provide greater regulatory clarity for FMEs and the funds managed by them.

The Amendment Rules may be accessed through this link: Rule 21B dt. 15th October, 2026_1.pdf  

[The authors are Partner and Associate, respectively, in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys]