GIFT City funds ask government to undo RBI’s foreign asset reporting mandate
April 19, 2026
Alternative Investment funds warn that the RBI’s rule that deems them resident Indians when reporting foreign assets creates a regulatory overlap that threatens their offshore status and ease of doing business at the international finance hub.
In a letter dated 10 April, which Mint has seen, the AIF Chief Financial Officers Association flagged a “critical regulatory overlap” triggered by the RBI's mandate for filing foreign liabilities and assets (FLA) returns, saying it conflicts with the specialized status usually granted to funds in the international zone. GIFT IFSC is a specialized regulatory zone within GIFT City that’s treated as a foreign jurisdiction for financial transactions.
The association asked the union government to start a dialogue with the central bank and issue a joint clarification circular exempting IFSCA-registered entities from the FLA return rule. Dharmesh Trivedi, promoter and director of AIF CFO Association, said, "We are expecting a clarification from the DEA (department of economic affairs) on the matter. The stated view of the IFSCA (International Financial Services Centres Authority) being the sole regulator for GIFT IFSC should be re-established, for all activities in and from GIFT IFSC across the world.”
There are a total of 314 alternative investment funds in Gift City spanning categories I, II and III, according to IFSCA. Their combined assets under management (AUM) and growth figures are not publicly available.
Regulatory clash
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. The FAQs also said that subsidiaries set up in the IFSC by foreign entities would be treated as foreign direct investment and be subject to such reporting. This means funds in the GIFT IFSC would be classified as resident Indians – a move that fundamentally contradicts their current status under the Foreign Exchange Management Act (FEMA).
An FLA return is a mandatory annual report submitted to the RBI. It captures the total foreign investment held by Indian entities in a financial year. The return provides the raw data needed to calculate India’s balance of payments and the international investment position (IIP).
Under existing foreign exchange rules, entities set up in GIFT IFSC are treated as non-residents, an important distinction that allows such entities several advantages to help them attract overseas capital. Also, according to the IFSCA Act, 2019, IFSCA is the sole regulator for the Gift City region. The association argues that the RBI’s clarification disrupts this foundation.
Rajul Bohra, partner at JSA Advocates and Solicitors, said, “The RBI's clarification requiring IFSC units to make FLA filing could create a lot of chaos if not resolved. Since FEMA treats Gift City as non-resident Indian, the region has a lot of advantages that make it attractive. But if RBI, which helps implement FEMA, treats it as resident Indian for this purpose, then regulations get complicated.”
Single-regulator model gone?
Another significant concern is the potential erosion of the “single regulator” model. GIFT IFSC was designed to be overseen by IFSCA alone, reducing the need for multiple filings across regulators and improving the ease of doing business.
Manisha Shroff, partner at Khaitan & Co, suggested that the mandate for FLA return filing should have come from IFSCA, which could have managed any gaps in cross-border investment monitoring raised by the RBI.
The letter also flagged competitive risks, saying other global financial centres such as Dubai and Singapore offer streamlined regulatory regimes, and any reintroduction of onshore compliance requirements could weaken GIFT City’s appeal as a fund domicile.
“If an FME in GIFT City is forced to grapple with RBI scrutiny, reconcile its capital flows with the RBI's domestic resident reporting standards, and face potential FEMA penalties for clerical mismatches, GPs (general partners) will simply bypass India. They will opt to domicile their India-focused or global funds in Mauritius, Singapore (VCC structures), or Dubai, where regulatory certainty is absolute,” it added.
The changes also come at a time when funds are grappling with geopolitical tensions stemming from the US-Iran war, the association said. “Given the heightened global uncertainty, this additional compliance requirement which is contradictory to established norms comes as a surprise to entities operating in GIFT IFSC,” the letter read.
Apoorva Ajith
Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.
The association asked the union government to start a dialogue with the central bank and issue a joint clarification circular exempting IFSCA-registered entities from the FLA return rule. Dharmesh Trivedi, promoter and director of AIF CFO Association, said, "We are expecting a clarification from the DEA (department of economic affairs) on the matter. The stated view of the IFSCA (International Financial Services Centres Authority) being the sole regulator for GIFT IFSC should be re-established, for all activities in and from GIFT IFSC across the world.”
There are a total of 314 alternative investment funds in Gift City spanning categories I, II and III, according to IFSCA. Their combined assets under management (AUM) and growth figures are not publicly available.
Regulatory clash
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. The FAQs also said that subsidiaries set up in the IFSC by foreign entities would be treated as foreign direct investment and be subject to such reporting. This means funds in the GIFT IFSC would be classified as resident Indians – a move that fundamentally contradicts their current status under the Foreign Exchange Management Act (FEMA).
An FLA return is a mandatory annual report submitted to the RBI. It captures the total foreign investment held by Indian entities in a financial year. The return provides the raw data needed to calculate India’s balance of payments and the international investment position (IIP).
Under existing foreign exchange rules, entities set up in GIFT IFSC are treated as non-residents, an important distinction that allows such entities several advantages to help them attract overseas capital. Also, according to the IFSCA Act, 2019, IFSCA is the sole regulator for the Gift City region. The association argues that the RBI’s clarification disrupts this foundation.
Rajul Bohra, partner at JSA Advocates and Solicitors, said, “The RBI's clarification requiring IFSC units to make FLA filing could create a lot of chaos if not resolved. Since FEMA treats Gift City as non-resident Indian, the region has a lot of advantages that make it attractive. But if RBI, which helps implement FEMA, treats it as resident Indian for this purpose, then regulations get complicated.”
Single-regulator model gone?
Another significant concern is the potential erosion of the “single regulator” model. GIFT IFSC was designed to be overseen by IFSCA alone, reducing the need for multiple filings across regulators and improving the ease of doing business.
Manisha Shroff, partner at Khaitan & Co, suggested that the mandate for FLA return filing should have come from IFSCA, which could have managed any gaps in cross-border investment monitoring raised by the RBI.
The letter also flagged competitive risks, saying other global financial centres such as Dubai and Singapore offer streamlined regulatory regimes, and any reintroduction of onshore compliance requirements could weaken GIFT City’s appeal as a fund domicile.
“If an FME in GIFT City is forced to grapple with RBI scrutiny, reconcile its capital flows with the RBI's domestic resident reporting standards, and face potential FEMA penalties for clerical mismatches, GPs (general partners) will simply bypass India. They will opt to domicile their India-focused or global funds in Mauritius, Singapore (VCC structures), or Dubai, where regulatory certainty is absolute,” it added.
The changes also come at a time when funds are grappling with geopolitical tensions stemming from the US-Iran war, the association said. “Given the heightened global uncertainty, this additional compliance requirement which is contradictory to established norms comes as a surprise to entities operating in GIFT IFSC,” the letter read.
Apoorva Ajith
Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.