The International Financial Services Centres Authority (IFSCA) has issued a new circular dated February 26, 2025, that updates the fee structure and interest guidelines for entities operating in the International Financial Services Centres (IFSC). This circular provides clarity on penalties for late payment of fees and introduces key changes that will take effect from March 1, 2025. The changes emphasize the importance of timely payment and highlight the financial implications of delays.
Key Points from the February 26, 2025 Circular
Interest on Late Payment of Fees: As per the earlier circular issued on May 17, 2023, and amended on February 6, 2024, entities operating in IFSC must adhere to the fee schedule and ensure that fees are paid on time. If there is a failure to pay outstanding dues within the specified timeframe, a penalty of 20% of the outstanding fee will apply. Furthermore, an interest rate of 15% per month is levied on the outstanding fee until it is paid in full, with a part of the month being considered as a full month.
This approach encourages timely payments and discourages delay. For example, if an entity is required to pay a fee of USD 1,000 by March 31, 2024, but only makes the payment on June 30, 2024, the entity will be required to pay an additional 20% late fee (USD 200) and 15% monthly interest on the late fee (USD 90 for three months). As a result, the total amount payable will be USD 1,290, an increase of 29% from the original fee.
New Fee Structure Effective March 1, 2025: The most significant update in this latest circular is the change in the interest rate for late payments, effective from March 1, 2025. The interest on unpaid or short-paid fees will now be calculated at 0.75% per month (instead of the previous 15% on the late fee). This change aims to offer a more streamlined and lower penalty structure for entities that fail to pay fees on time.
To illustrate, consider an entity required to pay a fee of USD 1,000 by March 31, 2024, but fails to do so, instead paying the fee on March 5, 2025. The new guidelines will charge a monthly interest rate of 0.75% on the remaining unpaid fee. This brings a more consistent, predictable penalty structure for businesses operating within IFSC.
Understanding the Calculation of Late Fees and Interest: The change in the penalty calculation is significant because it offers a more manageable approach for entities who might occasionally miss the due date. For example, if the unpaid fee is USD 1,000, and the payment is made after one month, the interest charge would be USD 7.5 (0.75% of USD 1,000). This is a much lower cost compared to the previous structure, where entities could incur up to 15% interest on the late fee itself.
Impact on IFSC Entities: Entities must carefully manage their payment schedules to avoid the accumulating fees. The previous structure of a 20% late fee plus a steep 15% interest on that late fee could lead to significant financial burden on late payers. With the new penalty of 0.75% interest per month on unpaid amounts, the penalty is more proportional to the delay, which may be easier for businesses to predict and manage.
This change is expected to provide businesses with a clearer understanding of the financial implications of late payments while still enforcing the importance of timely fee payments to the IFSCA.
