The International Financial Services Centers Authority ( IFSCA Official ) has introduced a comprehensive framework for Payment Service Providers (PSPs) operating within GIFT City IFSC. The aim of these regulations is to establish a clear structure for entities seeking authorization as PSPs, allowing them to provide various payment services to individuals and businesses both within and outside the IFSC. This article will break down the key aspects of the framework for easy understanding.
Key Definitions
Payment Services
Account Issuance Service:
Issuing a payment account to a user.
Services for operating a payment account, excluding cross-border money transfers.
Enabling money deposits or withdrawals from a payment account.
E-Money Issuance Service:
Issuing electronically stored monetary value (e-money) for making payment transactions.
Escrow Service:
Holding money in an escrow account with an IFSC Banking Unit (IBU) or IFSC Banking Company (IBC) during a transaction.
Cross-Border Money Transfer Service:
Accepting money in IFSC for transmission outside IFSC or receiving money from outside IFSC for transmission within or outside IFSC.
Merchant Acquisition Service:
Processing payment transactions for merchants, resulting in money transfer to the merchant.
PSP Process
Non-Payment Services:
Certain activities are not considered payment services under these regulations, such as:
Payment transactions by authorized agents for goods or services.
Transactions based on checks, drafts, and other specified documents.
Transactions within payment systems between PSPs and other financial institutions.
Transactions related to securities asset servicing.
Payment transactions within a company group.
Transportation of currency.
Services by technical service providers without holding funds.
Limited use payment instruments (e.g., store-specific gift cards).
Significant Payment Service Provider
A Regular PSP can be designated as a Significant PSP if it meets the following conditions:
Monthly average payment transactions exceeding $2 million for one service or $4 million for multiple services over a calendar year.
E-money issuance with an average daily value exceeding $3 million over a calendar year.
Eligible Entities
To apply for authorization, an entity must be incorporated as a company with its registered office in IFSC.
Process Flow of PSP Authorization
Duties of Payment Service Providers
Protecting Applicable Funds:
Safeguard funds and keep them separate from other funds.
Compliance with AML, CTF & KYC Guidelines:
Adhere to anti-money laundering and counterterrorist financing guidelines, including maintaining agent records and transaction logs for at least ten years.
Legal Compliance:
Comply with all relevant laws in India and any jurisdictions where services are provided.
Cooperation with the Authority:
Maintain open communication with IFSCA, report significant events, and seek approval for major changes or transactions.
User Protection:
Protect user interests, ensure clear communication, and meet disclosure requirements.
IT Security:
Secure IT systems and infrastructure, maintain security policies, and comply with IFSCA directions.
Grievance Redressal:
Provide channels for user complaints, resolve issues within 30 days, and keep records of complaints and resolutions.
Net Worth & Capital Requirements
Regular PSPs:
Minimum net worth of $100,000 at start and $200,000 by the end of the third financial year.
Significant PSPs:
Minimum net worth of $250,000 within 90 days of designation and $500,000 by the end of the third financial year.
Net worth includes paid-up equity capital, convertible preference shares, free reserves, and capital reserves excluding revaluation reserves.
Mandatory Disclosure Requirements
PSPs must disclose their authorization by IFSCA and ensure all customer materials are clear, accurate, and not misleading. Key information about transactions must be provided to users, including transaction amounts, fees, and recipient details.
Fee Structure
Application Fees: $1,000
Registration Fees: $25,000
Annual Fees: $5,000 for Regular PSPs and $10,000 for Significant PSPs from the end of the financial year in which registration is sought.
Tax Benefits
100% Tax Exemption: Business profits are fully exempt for 10 years out of the first 15 years of operation.
Minimum Alternate Tax (MAT): Reduced MAT rate of 9% for IFSC units.
For more details, you can check out this LinkedIn article on tax benefits in GIFT IFSC: Tax Benefits in GIFT IFSC.
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Disclaimer: This post is for informational purposes only and does not constitute professional advice. While efforts are made to ensure accuracy, we do not guarantee the completeness or reliability of the information provided. Any reliance is at your own risk. Consult professionals for specific advice.
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