What the SEZ Amendment Rules 2026 mean for IFSC units?
Introduction : The Special Economic Zones Rules, 2006 is an important statute to regulate the establishment, operation and administration of Special Economic Zones (SEZs) in India. On 15 October 2026, the Ministry of Commerce and Industry notified the Special Economic Zones (Third Amendment) Rules, 2026 and Special Economic Zones (Fourth Amendment) Rules, 2026. The latter Amendment made changes to Rules 18, 19, 21B and 22. These Rules apply to units and funds in an International Financial Service Centre (IFSC).
An IFSC is a jurisdiction that provides world class financial services to both residents and non-residents. It is governed by the International Financial Service Centre Authority in accordance with the SEZ Act, 2005 and SEZ Rules 2006. This is because an IFSC can only be established within an SEZ. Therefore, every IFSCA-approved unit is also an SEZ unit, resulting in added regulatory and compliance obligations. The recently introduced amendments simplify the documentation for funds in IFSC units. This blog explains the changes that matter for funds and show how fund managers and investors can align their documents with them.
Legal Provisions
A. Special Economic Zones Act, 2005
Section 55 - Empowers the Central Government to make rules for carrying out the provisions of the Act. It is the legal basis and enabling provision for the 2026 amendment.
B. Special Economic Zones Rules, 2026
Rule 18 - This rule addresses the approval of units and premises requirements. It requires the developer to confirm in writing the availability of space and infrastructure through a provisional offer of space. After the 2026 amendment, this was amended to specifically address funds established in IFSC. A written confirmation by the developer of a provisional offer of space to the fund management entity (FME) is now treated as the provisional offer of space for the fund. Further, the lease deed executed by the FME is deemed to be the lease deed of the fund itself.
Rule 19 - This Rule requires a unit to commence production or service activity within the validity period of its Letter of Approval, with the date of commencement intimated to the Development Commissioner. The amendment further provides that for an IFSC unit, commencement of service activity depends upon the date on which IFSCA grants its registration and recognition of the unit. It also introduces a specific framework for IFSC units on the renewal of Letter of Approval. This means that the renewal will be determined on the basis of IFSCA recommendations. The Authority considers employment generation opportunities, any violations of applicable laws and other relevant considerations to assess the approval.
Rule 21B - The Rule 21B deals with the sharing of office spaces and manpower amongst the units that are functioning within an International Financial Services Centre (IFSC). This rule allows IFSC units which have been authorised to lease aircrafts and ships, to share office spaces and manpower. The 2026 amendment replaced this rule; it enabled any IFSC to engage in leasing of aircrafts or ships, or a person wishing to set up such a unit to utilize another unit's (eligible) office space, manpower or both, provided that the IFSCA has granted permission for dispensing with a separate office Sharing can be with an aircraft or ship leasing unit, or a Trust and Company Service Provider (TCSP), but sharing is limited to a TCSP who or who wishes to provide services to the permitted person. The person need not obtain a separate provisional offer of space or lease deed; the documents of the unit sharing its premises suffice for Rule 18.
Rule 22 - Deals with the terms and conditions for Developers in order to avail exemptions and concessions. It provides that the Unit should submit Annual Performance Reports to the Development Commissioner. The amendment inserts a proviso expressly excluding funds established in an IFSC from the operation of that sub-rule.
Legal Analysis
A. FME’s Documents
Fund managers should ensure that the fund’s own documents clearly show who the FME is and how the fund relates to it. It's because the adjustment of Rule 18 takes the specifics of FME as critical to the fund' physical presence. The constitutional documents, offering documents and IFSCA filings should be under the same FME. In addition, the FME lease deed is important to the fund as well. It should be bound to the term of the fund and the permitted use and the term of renewal should match the fund's life. A short lease which supports a long-dated fund can be problematic.
B. Agreement between Fund and FME
Since the fund can use certain documents issued in the name of its Fund Management Entity (FME), it is important to clearly define the relationship between the fund and the FME in their agreement. The Investment Management Agreement should explain the services the FME will provide, the fees it will charge, and the period for which the agreement will remain in force.
The IFSCA FAQ booklet on SEZ compliance also identifies an invoice raised by the FME for its management fee, as evidence of commencement of operations for an FME. Keeping this in mind, the agreement between the fund and FME should be supported by actual transactions and records. Further, agreements of FME with other service providers should be reviewed to ensure that they do not contradict with the arrangements made between the fund and FME.
C. Regulatory Filings and Commencement of Operations
The amendment to Rule 19 makes the date of commencement particularly important for units established in an IFSC. Therefore, the FME should ensure that the commencement date is correctly and consistently recorded in its internal documents and relevant SEZ filings.
The IFSCA FAQ booklet on SEZ compliance lists certain documents as indicative evidence of commencement for a fund. These include the contribution agreement signed with an investor, a bank statement showing receipt of the investor’s contribution, the IFSCA letter of acknowledgement and the registered lease deed for the premises. However, the FAQ booklet predates the amendment. Accordingly, fund managers should confirm with the IFSCA whether any updated documentation requirements or filing procedures apply.
Practical Implications
The Special Economic Zones (Fourth Amendment) Rules, 2026 apply to the following stakeholders: IFSC fund managers, funds, aircrafts and ship leasing businesses, Trust and Company Service Provides (TCSPs), and existing IFSC units. The amendments seek to make some administrative and operational requirements more sustainable for businesses in the IFSC.
One of the major practical benefits for fund managers is the ease of documentation. The amendments simplify the process of forming and operating a fund. They ensure that businesses have the right infrastructure and do not over-invest in resources. The following changes also impact regulatory compliance. So it is crucial for businesses to be mindful of getting approval, but also to ensure that they stay compliant throughout their work.
In order to ensure that they are consistent with the amended rules, fund managers should review their existing agreements, regulatory filings, lease agreements and internal records. As for investors, they should ask for clarity concerning the fund’s regulatory standing. These changes could make it easier to proceed with the process, however proper documentation and ongoing regulatory compliance still remains essential.
Conclusion
The Special Economic Zones (Fourth Amendment) Rules, 2026 do not propose any major changes to the SEZ framework, but they ease the process of creating funds and conducting business. It needs to be treated as a welcome move as it simplifies the lease and office space documentation for funds. By allowing the fund to use its FME’s space offer and lease as its own and by tying commencement and renewal to IFSCA’s approvals the rules make the process clearer.
However, the benefit of these amendments can only be reaped if the relevant stakeholders maintain clear and proper documents. The fund structure, the service agreement and the regulatory filings should provide clarity on who the FME is and the relation between the FME and Fund needs to be properly specified.
Author: Vaishnavi Kulkarni in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
Endnotes
Special Economic Zones (Fourth Amendment) Rules, 2026, G.S.R. 895(E) (Oct. 15, 2026) (India), amending Rules 18, 19, 21B and 22 of the Special Economic Zones Rules, 2006.
Special Economic Zones (Amendment) Rules, 2026, G.S.R. 114(E) (Feb. 3, 2026) (India), inserting Rule 19(1A).
India Briefing, New SEZ Amendments Introduce Greater Operational Flexibility for IFSC Units in India (Oct. 19, 2026), https://www.india-briefing.com/news/india-sez-amendment-rules-2026-ifsc-changes-47474.html/
A2Z Taxcorp LLP, Government Notifies Special Economic Zones (Fourth Amendment) Rules, 2026 (Oct. 21, 2026), https://a2ztaxcorp.net/government-notifies-special-economic-zones-fourth-amendment-rules-2026-to-ease-regulatory-requirements-for-funds-and-aircraft-and-ship-leasing-units-in-international-financial-services-centres/.
TaxTMI, SEZ Notifications (G.S.R. 895(E)), https://www.taxtmi.com/notifications?id=145426.
AIF Services, GIFT IFSC Fund Setup Gets a Regulatory Update: Key Changes Under the SEZ (Fourth Amendment) Rules, 2026, https://www.aifservices.in/p/gift-ifsc-fund-setup-gets-a-regulatory.
A2Z Taxcorp LLP, Government Notifies Special Economic Zones (Amendment) Rules, 2026 to Streamline IFSC Unit Approvals (Feb. 17, 2026), https://a2ztaxcorp.net/government-notifies-special-economic-zones-amendment-rules-2026-to-streamline-ifsc-unit-approvals/.
IFSCA, FAQs on SEZ Compliances for IFSC Units, Annexure C (Indicative List of Documents for Proof of Commencement), https://taxguru.in/corporate-law/sez-compliance-faqs-booklet.html.
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