SEBI Relaxes Regulations For Stock Brokers In GIFT City

SEBI Relaxes Regulations For Stock Brokers In GIFT City. The Securities and Exchange Board of India (SEBI) has recently introduced a major regulatory shift aimed at increasing the operations of Indian stock brokers in the Gujarat International Finance Tec-City - International Financial Services Centre (GIFT-IFSC). Through a circular issued on May 2, 2025, SEBI has simplified its compliance framework by allowing stock brokers to operate via a Separate Business Unit (SBU) without the need for prior SEBI approval. This landmark change is set to make the regulatory environment more conducive for global trading and increase India's standing in the international financial.
GIFT-IFSC: A Developing Global Financial Hub
The Gujarat International Finance Tec-City (GIFT City) is India's first International Financial Services Centre (IFSC) and serves as a gateway for global financial operations. Developed under the Special Economic Zone (SEZ) Act of 2005 and reinforced by the IFSC Authority Act of 2019, GIFT-IFSC provides an ecosystem equipped with world-class infrastructure and fiscal benefits. Since its inception in 2015, GIFT-IFSC has attracted over 125 financial institutions, becoming a focal point for global investors.
The Government of India, under the leadership of Prime Minister Shri Narendra Modi, established the IFSC Authority on April 27, 2020, to oversee the operations in GIFT City. The goal was to build a competitive financial zone, comparable to Singapore and Dubai, and to create an enabling platform for financial institutions and intermediaries.
SEBI’s New Rules for Stock Brokers Trading on GIFT-IFSC
The recent circular from SEBI has laid down fresh guidelines enabling stock brokers to establish Separate Business Units (SBUs) in GIFT-IFSC. These units can operate independently from their Indian market operations. Importantly, SEBI has clarified that no prior approval from the regulator is necessary for setting up such units.
These new rules make it clear that:

Stock brokers can conduct investing and trading operations via a separate business unit without seeking prior SEBI approval.

Brokers who are already operating through a subsidiary may continue doing so, but they now also have the option to transition to an SBU.

Activities in the GIFT-IFSC must be kept entirely distinct from Indian market operations to comply with arm’s length principles.

Stock brokers must obtain approvals and follow regulations set by the International Financial Services Centres Authority (IFSCA), the regulatory body for GIFT-IFSC.

Arm’s Length Principle and Net Worth Segregation
To maintain transparency and fair competition, SEBI mandates that operations in GIFT-IFSC must comply with the arm's length principle. This means that dealings between the Indian entity and the SBU must be treated as transactions between unrelated parties.
Stock brokers must also:

Maintain separate books of accounts for their SBU.

Segregate the net worth of the Indian business from that of the SBU.

Ensure that the financial health of the Indian company is not influenced by the SBU’s performance or capital.

This ensures that the stock broker’s financials are not manipulated to appear stronger due to the performance of the foreign unit, thus ensuring market integrity.
No SEBI-Backed Grievance Redressal for SBUs
Clients and investors dealing with SBUs in GIFT-IFSC must understand that they will not have access to SEBI's grievance redressal systems like SCORES, Investor Protection Fund (IPF), or the standard Grievance Redressal Mechanism (GRM). This is because the SBUs fall under the exclusive jurisdiction of the IFSCA. Therefore, stock brokers must ensure proper grievance redressal systems under IFSCA norms and make their clients aware of the legal limitations.
Regulatory Authority of IFSCA
While SEBI sets the overarching principles, the International Financial Services Centres Authority (IFSCA) is the sole regulator for all policy decisions, risk management frameworks, eligibility requirements, and complaint handling in GIFT-IFSC. This delegation of authority aims to reduce regulatory overlap and make the process smoother for brokers and investors.
Benefits for Stock Brokers Operating SBUs in GIFT-IFSC
The move to operate via an SBU in GIFT-IFSC comes with multiple financial and operational benefits. These benefits are designed to make GIFT-IFSC more competitive with international financial centres like Singapore and Dubai.

Minimum Alternate Tax (MAT) Stock brokers operating in GIFT-IFSC are subjected to a significantly reduced MAT rate of 9%. This is far lower than the standard MAT rates applicable in domestic markets, making it financially advantageous to set up operations in GIFT City.

Lower Dividend Tax Foreign SBUs benefit from a reduced dividend tax rate of 10% compared to the standard 20%. This ensures better capital retention and enhanced profitability.

Income Tax Exemptions GIFT-IFSC provides a 100% income tax exemption for any ten consecutive years out of the first 15 years of operation. This makes it one of the most tax-friendly zones for financial entities in India.

Exemption from STT, CTT, and Stamp Duty Stock brokers and their clients operating in GIFT-IFSC are exempted from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and stamp duties. This results in lower transaction costs and improves operational margins.

No Tax on Interest Income for Foreign Investors Foreign and non-resident investors are not taxed on interest income earned from capital lending in GIFT-IFSC, thereby attracting more international participants.

GST and Customs Duty Exemption Services rendered in GIFT-IFSC are exempt from Goods and Services Tax (GST) and customs duties, creating a zero-tax environment for most operational services.

Capital Gains Tax Relief for Foreigners Capital gains tax on the transfer of market securities listed on GIFT-IFSC exchanges is fully exempt for foreign and non-resident investors. This encourages foreign participation in Indian securities through the GIFT platform.

Simplified Business Setup GIFT-IFSC allows businesses to deal with a single regulatory body (IFSCA), reducing the need to comply with multiple authorities. This simplifies the licensing and operational setup for stock brokers.

No PAN Requirement for Non-Residents Non-resident investors are not required to obtain a Permanent Account Number (PAN) for investing in GIFT-IFSC, making the process hassle-free and investor-friendly.

Ease of Doing Business GIFT-IFSC has fewer regulatory restrictions and foreign currency controls, making it easier for international investors to operate. The environment is designed to allow smooth capital flow, including dividend and royalty repatriation.

Zero Foreign Currency Restrictions All financial transactions in GIFT-IFSC can be conducted in foreign currencies without any exchange restrictions, making it ideal for global trading operations.

Roadmap for Stock Brokers
To leverage SEBI’s New Rules for Stock Brokers Trading on GIFT-IFSC, Indian brokers must follow a strategic roadmap:

Assess Internal Capacity Before entering GIFT-IFSC, stock brokers should conduct an internal assessment of their manpower, financial resources, and infrastructure to ensure they can sustain a Separate Business Unit (SBU).

Align With Arm’s Length Principles Companies must establish robust internal control systems to maintain arm’s length in transactions between the SBU and the domestic unit. This includes proper documentation, pricing methods, and independent financial records.

Obtain Approvals from IFSCA Brokers must apply for necessary licenses and approvals from the International Financial Services Centres Authority (IFSCA) and its Development Commissioner. These include compliance documentation, net worth certificates, and operational plans.

Register Grievance Redressal System All SBUs must be registered with IFSCA’s grievance redressal mechanism. This ensures investor protection and regulatory accountability.

Challenges for Stock Brokers Operating SBUs in GIFT-IFSC
Despite the benefits, there are several challenges that stock brokers may encounter while setting up SBUs in GIFT-IFSC.

Compliance with Arm’s Length Norms The requirement to maintain strict arm’s length in transactions necessitates additional financial audits and compliance reporting. This could increase administrative costs and time for brokers.

Dual Currency Management Even though GIFT-IFSC operates in foreign currencies, Indian companies may still need to perform some financial reporting in Indian Rupees (INR). This dual system can be complex and operationally taxing.

Regulatory Obligations Stock brokers need to fulfil IFSCA-specific registration and ongoing compliance obligations. These include annual financial statements, audit reports, and licensing renewals, which can add to their administrative workload.

Global Competitiveness Although GIFT-IFSC is India’s first IFSC, it still lacks the global brand and skilled manpower available in more mature markets like Singapore and Dubai. This makes it difficult for brokers to attract top talent and international clients.

Conclusion
The SEBI Relaxes Regulations For Stock Brokers In GIFT City with a progressive aim to increase presence of India in the global financial market. These changes allow stock brokers to set up Separate Business Units (SBUs) in GIFT-IFSC without prior SEBI approval, streamlining the compliance process and opening doors for international operations. While there are operational and regulatory challenges to consider, the tax incentives, simplified setup process, and ease of doing business make this an attractive opportunity for Indian stock brokers. With the right preparation and regulatory guidance, GIFT-IFSC can serve as a stepping stone for Indian financial service providers to reach a global audience.
If you have any queries, then you can connect with Compliance Calendar LLP experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. What is the recent SEBI circular regarding stock brokers in GIFT-IFSC?
 Ans. On May 2, 2025, SEBI issued a circular allowing stock brokers to set up a Separate Business Unit (SBU) in GIFT-IFSC without requiring prior approval from SEBI. The new rules allow brokers to trade and invest in securities through GIFT-IFSC independently, subject to compliance with the arm’s length principle and oversight by the International Financial Services Centres Authority (IFSCA).
Q2. What is a Separate Business Unit (SBU) under SEBI’s new guidelines?
Ans. A Separate Business Unit (SBU) refers to a distinct operational entity created by a stock broker to carry out trading and investment activities in the GIFT-IFSC. This unit is financially and administratively separate from the broker's domestic market operations and must follow specific rules set by IFSCA, including maintaining independent books of accounts and net worth.
Q3. Can stock brokers continue using their existing subsidiaries in GIFT-IFSC?
Ans. Yes. Stock brokers who already operate through a subsidiary or joint venture in GIFT-IFSC may continue doing so. However, SEBI’s new framework also provides them the flexibility to transition from their current structure to a direct Separate Business Unit (SBU) of the parent stock broking entity if they wish.
Q4. What are the tax benefits for stock brokers operating in GIFT-IFSC?
Ans. GIFT-IFSC offers significant tax advantages including a 9% Minimum Alternate Tax (MAT), 10% tax on dividends for foreign units, 100% income tax exemption for 10 out of 15 years, exemption from STT, CTT, stamp duty, GST, customs duty, and capital gains tax for certain foreign investors. These benefits make it financially lucrative to operate from GIFT-IFSC.
Q5. Are stock brokers required to follow SEBI’s grievance redressal system for SBUs in GIFT-IFSC?
Ans. No. SBUs operating in GIFT-IFSC do not fall under SEBI’s standard grievance redressal systems such as SCORES or IPF. Instead, these entities are required to register and comply with the grievance redressal mechanism prescribed by the IFSCA, which is the governing body for GIFT-IFSC operations.
Q6. What compliance requirements must stock brokers meet while operating an SBU in GIFT-IFSC?
Ans. Stock brokers must maintain separate accounts and net worth for the SBU, comply with the arm’s length pricing norms, obtain registration and approval from IFSCA, and ensure they meet eligibility and financial reporting obligations. They must also ensure all operational transactions are compliant with IFSCA guidelines and do not overlap with their Indian operations.
Q7. What challenges do brokers face in setting up SBUs in GIFT-IFSC?
Ans. Challenges include adherence to the arm’s length principle requiring detailed financial segregation, dual currency compliance issues, increased paperwork for separate registration and licensing with IFSCA, and the relatively less developed ecosystem compared to established IFSCs like Dubai or Singapore. These factors may require more resources and planning for brokers.
Q8. How does GIFT-IFSC promote ease of doing business for stock brokers?
Ans. GIFT-IFSC simplifies regulatory approvals by centralizing control under IFSCA, exempts non-residents from PAN requirements, offers tax exemptions, and allows 100% foreign currency operations without conversion barriers. It reduces the number of regulatory interactions and paperwork, making business setup and operations more streamlined and efficient.

The Securities and Exchange Board of India (SEBI) has recently introduced a major regulatory shift aimed at increasing the operations of Indian stock brokers in the Gujarat International Finance Tec-City - International Financial Services Centre (GIFT-IFSC). Through a circular issued on May 2, 2025, SEBI has simplified its compliance framework by allowing stock brokers to operate via a Separate Business Unit (SBU) without the need for prior SEBI approval. This landmark change is set to make the regulatory environment more conducive for global trading and increase India's standing in the international financial.

GIFT-IFSC: A Developing Global Financial Hub

The Gujarat International Finance Tec-City (GIFT City) is India's first International Financial Services Centre (IFSC) and serves as a gateway for global financial operations. Developed under the Special Economic Zone (SEZ) Act of 2005 and reinforced by the IFSC Authority Act of 2019, GIFT-IFSC provides an ecosystem equipped with world-class infrastructure and fiscal benefits. Since its inception in 2015, GIFT-IFSC has attracted over 125 financial institutions, becoming a focal point for global investors.

The Government of India, under the leadership of Prime Minister Shri Narendra Modi, established the IFSC Authority on April 27, 2020, to oversee the operations in GIFT City. The goal was to build a competitive financial zone, comparable to Singapore and Dubai, and to create an enabling platform for financial institutions and intermediaries.

SEBI’s New Rules for Stock Brokers Trading on GIFT-IFSC

The recent circular from SEBI has laid down fresh guidelines enabling stock brokers to establish Separate Business Units (SBUs) in GIFT-IFSC. These units can operate independently from their Indian market operations. Importantly, SEBI has clarified that no prior approval from the regulator is necessary for setting up such units.

These new rules make it clear that:

Stock brokers can conduct investing and trading operations via a separate business unit without seeking prior SEBI approval.
Brokers who are already operating through a subsidiary may continue doing so, but they now also have the option to transition to an SBU.
Activities in the GIFT-IFSC must be kept entirely distinct from Indian market operations to comply with arm’s length principles.
Stock brokers must obtain approvals and follow regulations set by the International Financial Services Centres Authority (IFSCA), the regulatory body for GIFT-IFSC.

Arm’s Length Principle and Net Worth Segregation

To maintain transparency and fair competition, SEBI mandates that operations in GIFT-IFSC must comply with the arm's length principle. This means that dealings between the Indian entity and the SBU must be treated as transactions between unrelated parties.

Stock brokers must also:

Maintain separate books of accounts for their SBU.
Segregate the net worth of the Indian business from that of the SBU.
Ensure that the financial health of the Indian company is not influenced by the SBU’s performance or capital.

This ensures that the stock broker’s financials are not manipulated to appear stronger due to the performance of the foreign unit, thus ensuring market integrity.

No SEBI-Backed Grievance Redressal for SBUs

Clients and investors dealing with SBUs in GIFT-IFSC must understand that they will not have access to SEBI's grievance redressal systems like SCORES, Investor Protection Fund (IPF), or the standard Grievance Redressal Mechanism (GRM). This is because the SBUs fall under the exclusive jurisdiction of the IFSCA. Therefore, stock brokers must ensure proper grievance redressal systems under IFSCA norms and make their clients aware of the legal limitations.

Regulatory Authority of IFSCA

While SEBI sets the overarching principles, the International Financial Services Centres Authority (IFSCA) is the sole regulator for all policy decisions, risk management frameworks, eligibility requirements, and complaint handling in GIFT-IFSC. This delegation of authority aims to reduce regulatory overlap and make the process smoother for brokers and investors.

Benefits for Stock Brokers Operating SBUs in GIFT-IFSC

The move to operate via an SBU in GIFT-IFSC comes with multiple financial and operational benefits. These benefits are designed to make GIFT-IFSC more competitive with international financial centres like Singapore and Dubai.

Minimum Alternate Tax (MAT) Stock brokers operating in GIFT-IFSC are subjected to a significantly reduced MAT rate of 9%. This is far lower than the standard MAT rates applicable in domestic markets, making it financially advantageous to set up operations in GIFT City.
Lower Dividend Tax Foreign SBUs benefit from a reduced dividend tax rate of 10% compared to the standard 20%. This ensures better capital retention and enhanced profitability.
Income Tax Exemptions GIFT-IFSC provides a 100% income tax exemption for any ten consecutive years out of the first 15 years of operation. This makes it one of the most tax-friendly zones for financial entities in India.
Exemption from STT, CTT, and Stamp Duty Stock brokers and their clients operating in GIFT-IFSC are exempted from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and stamp duties. This results in lower transaction costs and improves operational margins.
No Tax on Interest Income for Foreign Investors Foreign and non-resident investors are not taxed on interest income earned from capital lending in GIFT-IFSC, thereby attracting more international participants.
GST and Customs Duty Exemption Services rendered in GIFT-IFSC are exempt from Goods and Services Tax (GST) and customs duties, creating a zero-tax environment for most operational services.
Capital Gains Tax Relief for Foreigners Capital gains tax on the transfer of market securities listed on GIFT-IFSC exchanges is fully exempt for foreign and non-resident investors. This encourages foreign participation in Indian securities through the GIFT platform.
Simplified Business Setup GIFT-IFSC allows businesses to deal with a single regulatory body (IFSCA), reducing the need to comply with multiple authorities. This simplifies the licensing and operational setup for stock brokers.
No PAN Requirement for Non-Residents Non-resident investors are not required to obtain a Permanent Account Number (PAN) for investing in GIFT-IFSC, making the process hassle-free and investor-friendly.
Ease of Doing Business GIFT-IFSC has fewer regulatory restrictions and foreign currency controls, making it easier for international investors to operate. The environment is designed to allow smooth capital flow, including dividend and royalty repatriation.
Zero Foreign Currency Restrictions All financial transactions in GIFT-IFSC can be conducted in foreign currencies without any exchange restrictions, making it ideal for global trading operations.

Roadmap for Stock Brokers

To leverage SEBI’s New Rules for Stock Brokers Trading on GIFT-IFSC, Indian brokers must follow a strategic roadmap:

Assess Internal Capacity Before entering GIFT-IFSC, stock brokers should conduct an internal assessment of their manpower, financial resources, and infrastructure to ensure they can sustain a Separate Business Unit (SBU).
Align With Arm’s Length Principles Companies must establish robust internal control systems to maintain arm’s length in transactions between the SBU and the domestic unit. This includes proper documentation, pricing methods, and independent financial records.
Obtain Approvals from IFSCA Brokers must apply for necessary licenses and approvals from the International Financial Services Centres Authority (IFSCA) and its Development Commissioner. These include compliance documentation, net worth certificates, and operational plans.
Register Grievance Redressal System All SBUs must be registered with IFSCA’s grievance redressal mechanism. This ensures investor protection and regulatory accountability.

Challenges for Stock Brokers Operating SBUs in GIFT-IFSC

Despite the benefits, there are several challenges that stock brokers may encounter while setting up SBUs in GIFT-IFSC.

Compliance with Arm’s Length Norms The requirement to maintain strict arm’s length in transactions necessitates additional financial audits and compliance reporting. This could increase administrative costs and time for brokers.
Dual Currency Management Even though GIFT-IFSC operates in foreign currencies, Indian companies may still need to perform some financial reporting in Indian Rupees (INR). This dual system can be complex and operationally taxing.
Regulatory Obligations Stock brokers need to fulfil IFSCA-specific registration and ongoing compliance obligations. These include annual financial statements, audit reports, and licensing renewals, which can add to their administrative workload.
Global Competitiveness Although GIFT-IFSC is India’s first IFSC, it still lacks the global brand and skilled manpower available in more mature markets like Singapore and Dubai. This makes it difficult for brokers to attract top talent and international clients.

Conclusion

The SEBI Relaxes Regulations For Stock Brokers In GIFT City with a progressive aim to increase presence of India in the global financial market. These changes allow stock brokers to set up Separate Business Units (SBUs) in GIFT-IFSC without prior SEBI approval, streamlining the compliance process and opening doors for international operations. While there are operational and regulatory challenges to consider, the tax incentives, simplified setup process, and ease of doing business make this an attractive opportunity for Indian stock brokers. With the right preparation and regulatory guidance, GIFT-IFSC can serve as a stepping stone for Indian financial service providers to reach a global audience.

If you have any queries, then you can connect with Compliance Calendar LLP experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is the recent SEBI circular regarding stock brokers in GIFT-IFSC?

Ans. On May 2, 2025, SEBI issued a circular allowing stock brokers to set up a Separate Business Unit (SBU) in GIFT-IFSC without requiring prior approval from SEBI. The new rules allow brokers to trade and invest in securities through GIFT-IFSC independently, subject to compliance with the arm’s length principle and oversight by the International Financial Services Centres Authority (IFSCA).

Q2. What is a Separate Business Unit (SBU) under SEBI’s new guidelines?

Ans. A Separate Business Unit (SBU) refers to a distinct operational entity created by a stock broker to carry out trading and investment activities in the GIFT-IFSC. This unit is financially and administratively separate from the broker's domestic market operations and must follow specific rules set by IFSCA, including maintaining independent books of accounts and net worth.

Q3. Can stock brokers continue using their existing subsidiaries in GIFT-IFSC?

Ans. Yes. Stock brokers who already operate through a subsidiary or joint venture in GIFT-IFSC may continue doing so. However, SEBI’s new framework also provides them the flexibility to transition from their current structure to a direct Separate Business Unit (SBU) of the parent stock broking entity if they wish.

Q4. What are the tax benefits for stock brokers operating in GIFT-IFSC?

Ans. GIFT-IFSC offers significant tax advantages including a 9% Minimum Alternate Tax (MAT), 10% tax on dividends for foreign units, 100% income tax exemption for 10 out of 15 years, exemption from STT, CTT, stamp duty, GST, customs duty, and capital gains tax for certain foreign investors. These benefits make it financially lucrative to operate from GIFT-IFSC.

Q5. Are stock brokers required to follow SEBI’s grievance redressal system for SBUs in GIFT-IFSC?

Ans. No. SBUs operating in GIFT-IFSC do not fall under SEBI’s standard grievance redressal systems such as SCORES or IPF. Instead, these entities are required to register and comply with the grievance redressal mechanism prescribed by the IFSCA, which is the governing body for GIFT-IFSC operations.

Q6. What compliance requirements must stock brokers meet while operating an SBU in GIFT-IFSC?

Ans. Stock brokers must maintain separate accounts and net worth for the SBU, comply with the arm’s length pricing norms, obtain registration and approval from IFSCA, and ensure they meet eligibility and financial reporting obligations. They must also ensure all operational transactions are compliant with IFSCA guidelines and do not overlap with their Indian operations.

Q7. What challenges do brokers face in setting up SBUs in GIFT-IFSC?

Ans. Challenges include adherence to the arm’s length principle requiring detailed financial segregation, dual currency compliance issues, increased paperwork for separate registration and licensing with IFSCA, and the relatively less developed ecosystem compared to established IFSCs like Dubai or Singapore. These factors may require more resources and planning for brokers.

Q8. How does GIFT-IFSC promote ease of doing business for stock brokers?

Ans. GIFT-IFSC simplifies regulatory approvals by centralizing control under IFSCA, exempts non-residents from PAN requirements, offers tax exemptions, and allows 100% foreign currency operations without conversion barriers. It reduces the number of regulatory interactions and paperwork, making business setup and operations more streamlined and efficient.