Accounting & Financial Reporting for IFSC Registered Companies in GIFT City

Introduction – Why Accounting in IFSC is Different

GIFT City’s International Financial Services Centre (IFSC) represents India’s gateway to global finance. Unlike traditional Indian businesses, IFSC registered companies operate in a highly regulated, cross-border environment governed by both Indian corporate law and international financial standards. Here, accounting is not merely a statutory obligation—it is a regulatory instrument, a credibility marker, and a risk-management function.

Entities in IFSC deal with foreign investors, overseas counterparties, and global regulators. Their financial statements are often scrutinized beyond India, forming the basis for capital adequacy assessments, license continuity, and group-level consolidation. A routine bookkeeping mindset is therefore inadequate.

Accounting for IFSC registered companies must be designed to meet dual objectives: compliance with the Companies Act, 2013, and adherence to IFSCA’s sector-specific regulatory framework, often aligned with global standards such as IFRS. In this ecosystem, accounting becomes a strategic pillar—supporting governance, regulatory trust, and global integration.

IFSC Regulatory Environment & IFSCA Framework

Every IFSC entity operates within a dual regulatory architecture. While incorporation and corporate governance are governed by the Companies Act, 2013, the business and operational framework is regulated by the International Financial Services Centres Authority (IFSCA). This combination creates a distinct compliance environment unlike any other in India.

IFSCA regulates a wide spectrum of entities, including:

• Banking Units (IBUs)
• Fund Management Entities (FMEs)
• Broker-Dealers and Capital Market Intermediaries
• Insurance Offices
• FinTech and Payment Service Providers
• Ancillary and Support Service Providers

Each category is governed by a separate set of regulations prescribing minimum capital, net worth thresholds, periodic regulatory returns, and sector-specific compliance obligations. Accounting systems must therefore be structured not just for statutory reporting but also for continuous regulatory supervision.

Financial information feeds directly into capital adequacy monitoring, net worth certification, risk reporting, and supervisory inspections. Errors in classification, timing, or disclosure can trigger regulatory queries or even threaten license continuity.

In this environment, books of accounts in IFSC must be regulator-aware—aligned with the reporting architecture of IFSCA and capable of producing audit-ready, regulator-ready outputs at all times.

Accounting & Financial Reporting Framework

Books of Account – Companies Act Foundation

Every IFSC registered company is incorporated under the Companies Act, 2013 and is therefore subject to Section 128, which mandates:

• Maintenance of books on accrual basis
• Double-entry system of accounting
• Preservation of records for the prescribed period
• Accessibility for inspection by regulators

In practice, IFSC entities operate in a fully digital environment. Accounting systems must ensure data integrity, audit trails, and regulator-access readiness. Given the cross-border nature of transactions, documentation standards are significantly higher than those of conventional domestic businesses.

The “place of maintenance” of books—whether within IFSC or elsewhere in India—must be appropriately disclosed and approved, ensuring regulatory visibility and control.

Applicable Accounting Standards

A defining feature of IFSC financial reporting is the coexistence of Ind AS and IFRS:

For IBUs, IFRS is mandatory to ensure global comparability. This is critical for:

• Consolidation with foreign parent entities
• Reporting to overseas regulators and stakeholders
• Alignment with international banking practices

For Indian promoters and finance teams accustomed to Indian GAAP or traditional accounting, this transition is substantial. Concepts such as fair value measurement, expected credit loss models, and complex revenue recognition principles require a different level of financial discipline and professional judgment.

Statutory Audit & Regulatory Reporting

All IFSC companies must undergo statutory audit under the Companies Act by ICAI-qualified auditors. However, the audit scope extends beyond routine compliance:

• Dual accountability to RoC and IFSCA
• Sector-specific reporting obligations
• Net worth and capital adequacy certifications
• Periodic regulatory returns
• Risk, governance, and operational disclosures

Audit in IFSC is not a year-end ritual; it is an ongoing readiness posture. Financial systems must be built to withstand supervisory scrutiny at any point during the year.

Key Accounting Challenges in the IFSC Environment

Accounting for IFSC registered companies presents a unique set of challenges rarely encountered in domestic Indian enterprises.

Multi-currency Operations:

Most IFSC entities transact in foreign currencies. Accounting systems must manage:

• Functional currency determination
• Forex translation and remeasurement
• Recognition of exchange differences
• Alignment with IFRS/Ind AS principles

Even minor errors in forex treatment can materially distort profitability and net worth.

Cross-Border Revenue Recognition:

Revenue streams often arise from overseas clients, international funds, or global trading platforms. Determining:

• When revenue is “earned”
• Whether it is performance-based, transaction-based, or time-based
• Whether principal or agent accounting applies

requires careful contract analysis and professional judgment.

Transfer Pricing Alignment:

IFSC entities frequently operate as part of multinational structures. Inter-company services, management fees, and cost-sharing arrangements must be aligned with transfer pricing documentation. Accounting records must mirror arm’s-length pricing to avoid tax and regulatory exposure.

Capital & Net Worth Monitoring:

Most IFSCA regulations impose minimum net worth and capital adequacy requirements. Accounting is the primary data source for:

• Regulatory capital computation
• Ongoing solvency monitoring
• Net worth certification

A misclassification or delayed adjustment can result in non-compliance—even when the business is financially sound.

License-Condition Driven Accounting:

IFSCA licenses often carry specific operational conditions:
limits on activities, segregation of funds, ring-fencing of client assets, or restrictions on related-party transactions. Accounting systems must be designed to enforce these conditions structurally.

Regulatory vs Management Reporting:

IFSC entities require two parallel information streams:

• Regulatory reporting aligned with IFSCA formats
• Management MIS for business decision-making

Reconciling these without inconsistency is a persistent operational challenge.

Audit Under Supervisory Scrutiny:

Unlike typical companies, IFSC entities are subject to supervisory inspections. Audits are not only for shareholders but for regulators. Documentation, classification, and judgment must be defensible in a regulatory forum.

Tax Exemptions & Incentive Treatment:

IFSC entities enjoy significant tax benefits. However, improper accounting of exempt income, losses, or carry-forwards can dilute these advantages or attract unnecessary queries.

In IFSC, accounting errors are not merely technical—they are regulatory events.

Advisory Insight for Founders & CFOs

For IFSC entities, accounting must be designed “regulator-first.” The chart of accounts should mirror IFSCA reporting architecture, not generic ERP defaults. Real-time net worth and capital trackers are essential, not optional. IFRS or Ind AS alignment must be embedded from Day One, especially where overseas consolidation is involved. Audit documentation should be created contemporaneously, not reconstructed at year-end. Every revenue stream, inter-company charge, and forex entry should be defensible under regulatory scrutiny. Founders and CFOs must view accounting not as a back-office function but as a license-protection mechanism. In IFSC, the quality of your financial architecture directly influences regulatory confidence, operational continuity, and global credibility.

Conclusion

GIFT City’s IFSC ecosystem operates closer to Singapore and Dubai than to traditional Indian business environments. Conventional accounting approaches are insufficient in this globally integrated, regulator-driven framework. IFSC registered companies require accounting systems that are compliant, audit-ready, and regulator-aligned from inception. Financial reporting here is not a statutory formality—it is a strategic function shaping regulatory trust and market reputation. Those who invest early in robust IFSC-compliant accounting infrastructure gain not only compliance certainty but also long-term operational resilience and global credibility.