Skip to main content
KCM Consultants LLC
Cross-Border

Setting Up a FinTech Entity in GIFT City (IFSC)

GIFT City's regulator rewrote its fintech sandbox rules in March 2026, and the Finance Act, 2026 doubled the IFSC tax holiday to 20 years. Here is how the route works today.

By Suril Mehta, CA, Partner, K C Mehta & Co LLP | KCM Consultants LLC, Dubai and Yog Bakshi, Manager, M&A

Published 11 November 20266 min

Key Takeaways

  • The International Financial Services Centres Authority (IFSCA) issued a new FinTech Sandbox Framework on 16 March 2026. It replaces the sandbox provisions of the 2022 FinTech Entity framework.
  • Before applying for the sandbox, an applicant must first consider whether its business fits the IFSCA (TechFin and Ancillary Services) Regulations, 2025, which are the route for established solutions.
  • Sandbox testing runs for up to 12 months, extendable by 6 months, under a limited use authorisation (LUA).
  • Both Indian and foreign applicants can apply. A foreign applicant must not be from a jurisdiction on the FATF “call for action” list.
  • An IFSC unit can claim the income tax deduction under section 147 of the Income-tax Act, 2025 for 20 consecutive years out of 25, from tax year 2026-27.

Two routes into the IFSC

1. Authorisation for an established solution. A business with a working product, for example a payment service or a technology service to financial institutions, is expected to look first at the IFSCA (TechFin and Ancillary Services) Regulations, 2025. The 2026 sandbox framework asks every applicant to explore these regulations before applying for the sandbox.

2. The sandbox, for an innovation that needs live testing. A business whose idea needs to be tested, with regulatory relaxations where justified, applies for a limited use authorisation under the 2026 FinTech Sandbox Framework.

The 2026 FinTech Sandbox Framework

Point Rule
Circular IFSCA, 16 March 2026, with immediate effect
Earlier rules Sandbox provisions of earlier circulars superseded; existing LUAs continue under the 2022 framework until they expire
Types FinTech Regulatory Sandbox (live testing with real customers); FinTech Innovation Sandbox (testing on market data supplied by IFSC institutions); Inter-Operable Regulatory Sandbox (products spanning more than one regulator); overseas referrals through FinTech bridges
Testing period Up to 12 months, extendable by 6 months on written request
Areas Capital markets, banking and payments, insurance, pensions, metals and commodities, and related financial support services
Reporting Monthly status reports by the 10th of the next month; final report within 30 days of the end of testing; records kept 7 years after exit

Who can apply

  • Indian applicants: a company, LLP or partnership firm, or its IFSC branch; a DPIIT-registered fintech start-up; an entity regulated by an Indian financial regulator; or an individual or group affiliated with a recognised Indian research institution, incubator or accelerator.
  • Foreign applicants: a legal person, or an individual or group affiliated with a recognised research institution, incubator or accelerator, from a jurisdiction not identified by the FATF as a high-risk jurisdiction subject to a call for action.

What the application must show

  • Innovative technology in the core product, business model or delivery, or in support of such activities.
  • Potential to significantly improve existing financial services, and a genuine need to test.
  • Benefits to users and a risk management plan, including safeguards for customers.
  • An intention and feasibility to deploy the solution after testing.

The process

  1. Preliminary application on IFSCA’s single window (SWIT). IFSCA examines it within 30 days.
  2. Final application once the preliminary one is accepted, with the fee.
  3. In-principle approval within 60 days, with conditions to meet within 30 days, which may include a testing partner.
  4. Limited use authorisation, at IFSCA’s discretion, and testing begins.
  5. Exit at the end of testing, when the LUA and any relaxations expire. To continue, the entity seeks a full authorisation under the relevant regulations.

Currency rules

In the regulatory sandbox, the entity transacts only in the foreign currencies listed in the IFSCA (Banking) Regulations, 2020, and keeps its books in a freely convertible foreign currency other than INR. Administrative expenses may be paid in INR. Financial information is reported to IFSCA in US dollars. These currency rules do not apply to the innovation sandbox, which can be run remotely.

Tax

An IFSC unit can claim a deduction of its eligible income under section 147 of the Income-tax Act, 2025 (formerly section 80LA). The Finance Act, 2026 extended the period from 10 consecutive years out of 15 to 20 consecutive years out of 25, from tax year 2026-27, at the unit’s choice of years. After the holiday, a concessional rate applies. The unit’s eligibility should be confirmed for its specific income, and minimum alternate tax and GST positions checked separately.

Set-up checklist

  • Map the product to the IFSCA (TechFin and Ancillary Services) Regulations, 2025 first; apply to the sandbox only if live testing is genuinely needed.
  • Choose the vehicle: company, LLP or branch, and for foreign groups, the parent’s jurisdiction.
  • Prepare the test plan: objectives, scenarios, success criteria, customer safeguards and an exit strategy.
  • Identify a testing partner where IFSCA is likely to ask for one.
  • Set up foreign currency banking with an IFSC banking unit, and an INR account for administrative expenses.
  • Plan the tax position: section 147 years, MAT, GST and transfer pricing with the parent.
  • Calendar the reporting: monthly status reports and the final report.

FAQ

Is the 2022 FinTech Entity framework still in force?
Its sandbox provisions were superseded on 16 March 2026. Entities holding a limited use authorisation under it continue under the 2022 rules until that authorisation expires.

Do I have to be a start-up?
No. Companies, LLPs, partnership firms, branches, regulated entities and foreign legal persons can apply, as well as start-ups.

How long can I stay in the sandbox?
Up to 12 months, with one extension of up to 6 months on written request. The authorisation and any relaxations expire at the end of testing.

Is there still a grant scheme?
IFSCA ran a FinTech Incentive Scheme from 2022 with grants for start-ups, proofs of concept, sandbox testing and listing. IFSCA’s website now lists it under archives, so confirm with IFSCA whether grants are available before planning on one.

Talk to KCM about setting up in GIFT City: contact us.

Sources and last checked: 9 November 2026

This is not to be construed as legal advice. The actual advice will depend upon the facts and will have to take into consideration the case-specific facts and the anti-abuse regulations.

← Back to Knowledge Hub