Alternative investment funds operating in GIFT City have escalated concerns over a new regulatory mandate that threatens their offshore status. According to reports from Mint, the AIF Chief Financial Officers Association submitted a letter dated 10 April to the government, flagging a 'critical regulatory overlap' triggered by the RBI's mandate for filing foreign liabilities and assets (FLA) returns. The association represents 314 alternative investment funds in Gift City spanning categories I, II and III, as reported by the IFSCA.
On 25 March, the RBI clarified in an FAQ that entities operating in GIFT IFSC must file annual FLA returns if they have received foreign investments or hold overseas assets. As reported by Mint, the mandate states that subsidiaries set up in the IFSC by foreign entities would be treated as foreign direct investment and subject to such reporting. This classification fundamentally contradicts their current status under the Foreign Exchange Management Act (FEMA), which treats GIFT IFSC entities as non-residents with several regulatory advantages.
The association warns that the RBI's clarification could erode the 'single regulator' model that GIFT IFSC was designed to maintain. According to Mint, the letter states that if entities must report to both IFSCA and the RBI, the resulting dual compliance burden negates the ease of doing business advantages. Legal experts suggest the mandate should have come from IFSCA, which could have managed any gaps in cross-border investment monitoring raised by the RBI.
The association flagged significant competitive risks, warning that the additional compliance requirements could weaken GIFT City's appeal as a fund domicile. As reported by Mint, the letter states that general partners may bypass India and opt to domicile funds in Mauritius, Singapore, or Dubai where regulatory certainty is absolute. The changes come at a time when funds are grappling with geopolitical tensions, with the association noting that given the heightened global uncertainty, this additional compliance requirement comes as a surprise to entities operating in GIFT IFSC.
