Regulation and Taxation of GIFT City Funds

Last updated: October 2026

Regulatory framework. GIFT City funds sit under the IFSCA (International Financial Services Centres Authority), India's unified regulator for the IFSC. Fund Management Entities (FMEs) must be registered with IFSCA to operate, and different fund categories (Retail, Category I/II/III AIF, etc.) carry different regulatory conditions around investor eligibility, disclosure and structure.

India-side tax treatment (general reference)

Income type	Typical treatment (IFSC Cat III AIF)
Capital gains — equity-oriented mutual fund units	Exempt
Capital gains — listed equity	Taxed at fund level: ~20% short-term / ~12.5% long-term*
Interest income	~10%*
Dividend income	~10%*
GST on management/performance fees	Not applicable

*Rates reference Section 10(4D) of the Income-tax Act, 1961 for specified funds meeting prescribed conditions, and are subject to change. Confirm current rates with your tax advisor.

For resident Indian investors: LRS & TCS

Resident investors accessing outbound GIFT City structures do so via the Liberalised Remittance Scheme (LRS), capped at USD 250,000 per person per financial year. Remittances above ₹10 lakh in a financial year attract 20% Tax Collected at Source (TCS) — this isn't an extra cost, but an advance tax you can claim back or adjust against your total tax liability when filing your return.

US-based? It's a different picture.

US tax law treats foreign funds very differently from Indian tax law — most notably through PFIC classification. If you're a US taxpayer, read the dedicated guide before going further. GIFT City Funds for US-Based NRIs →

The three questions that decide your tax

There is no single tax rate for "GIFT City funds". The outcome for any investor comes from three answers:

Where are you tax resident? A resident Indian, an NRI in Dubai and a US citizen holding the same fund can each owe different tax, in different countries.
What is the fund's structure? A Mutual Fund FoF, a Retail Feeder Fund, an AIF and a PMS portfolio are taxed differently, and an AIF's category matters too. See fund structures.
Which way does the money go? An inbound fund invests in India; an outbound fund invests abroad. The India-side rules and the paperwork differ.

India's tax and your country's tax

India taxes income that arises in India, and your country of residence usually taxes your worldwide income. Where both can tax the same income, a Double Taxation Avoidance Agreement (DTAA) between India and that country decides who taxes what and how credit is given. India has such treaties with the countries most NRIs live in, including the UAE, the UK, the US, Canada and Singapore.

To use a treaty, you normally need a Tax Residency Certificate (TRC) from your country of residence. Fund houses often ask for it during onboarding, so obtain it before you invest rather than after.

Country-specific points, such as the US PFIC rules or the UK's offshore fund rules, are covered in GIFT City funds for NRIs, country by country.

What to ask before you invest

Is tax deducted inside the fund, and at what stage — on income, on gains, or on redemption?
Does the fund issue the statements your home country needs for your tax return?
For US persons: is the fund documented as Non-PFIC, or does it provide QEF information?
For UK residents: does the fund have UK reporting fund status?
For resident Indians: how will TCS on your LRS remittance be shown in your tax records?

Take the answers to a qualified CA or tax adviser in your country of residence. They, not the fund, are responsible for your return.

Tax benefits for IFSC units and funds in GIFT City

Most of GIFT City's headline tax benefits apply to businesses and funds set up in the IFSC, not directly to individual investors. As summarised in a tax note published on IFSCA's website:

Benefit	What it means
10-year tax holiday (Section 80LA)	100% deduction of business income for any 10 consecutive years out of 15
Corporate tax and MAT	Minimum Alternate Tax at a reduced 9% where MAT applies; not applicable if the unit opts for the new tax regime
Funds (Section 10(4D))	Exemption for certain income of specified funds; start-of-operations date extended to 31 March 2030
Relocated funds	Moving an offshore fund's assets into GIFT IFSC is tax-neutral, subject to conditions
Non-residents on IFSC exchanges	Capital gains on specified securities exempt; 10% withholding on dividends; 9% on interest from IFSC-listed bonds
GST	No GST on services received in, within or from the IFSC in specified cases
Stamp duty, STT and CTT	None on transactions on GIFT IFSC exchanges

Is GIFT City a tax haven?

No. GIFT IFSC is part of India, with an Indian regulator, Indian tax law and India's tax treaties. It offers targeted incentives to attract financial business, but investors are still taxed under India's rules and those of the country where they live.

Common questions

What is the GIFT City 10-year tax holiday?

IFSC units can claim a 100% deduction of their business income for any 10 consecutive years out of 15 under Section 80LA. It benefits businesses and funds set up in GIFT IFSC, not individual investors directly.

What is the corporate tax rate in GIFT City?

IFSC units pay normal Indian corporate tax on income not covered by the tax holiday, with Minimum Alternate Tax at a reduced 9% where MAT applies. Units that opt for the new tax regime do not pay MAT.

Is there an income tax exemption in GIFT City?

There are targeted exemptions: the 10-year holiday for IFSC units, Section 10(4D) for specified funds, and capital gains exemptions for non-residents on specified securities traded on IFSC exchanges. India's tax treaties (DTAA) also apply.

What are the GST rules in GIFT City?

GIFT IFSC sits in a Special Economic Zone. GST is not charged on specified services received in, within or from the IFSC, which keeps costs down for IFSC units.

What is GIFT City taxation for NRIs?

NRIs are taxed in India only on income that India can tax, and many GIFT City products are designed so that non-residents bear little or no Indian tax. NRIs are also taxed in their country of residence; see the rules by country.

What are the GIFT City tax benefits?

GIFT IFSC offers tax concessions mainly at the level of the fund and IFSC units, such as Section 10(4D) for specified funds and deductions for IFSC units. Whether you pay less tax as an investor depends on the fund's structure and your residence.

What are the GIFT City tax benefits for NRIs?

For NRIs, the main practical benefits are investing in US Dollars without LRS or TCS and the fund-level concessions above. NRIs are also taxed in their country of residence, so the overall outcome depends on that country's rules and the tax treaty.

How are GIFT City mutual funds taxed for resident Indians?

Resident Indians are taxed on their worldwide income, so gains and income from GIFT City funds are taxable in India according to the fund's structure, and the holding must be shown in Schedule FA. A chartered accountant should confirm the treatment for a specific fund.

What is Section 10(4D) for GIFT City funds?

Section 10(4D) of the Income-tax Act, 1961 exempts certain income of specified funds located in an IFSC, subject to conditions. It applies to the fund, not automatically to every investor.

Is there capital gains tax on GIFT City funds?

Capital gains can arise at the fund level or for you, depending on the structure, and rates follow Indian law and the law where you live. Check the fund's tax note and take advice before investing.

Disclaimer. Tax rules referenced above are general, current as of publication, and subject to change by the relevant authorities. This is not tax advice — consult a qualified CA or tax professional in your country of residence.

Official sources

Rules change. Check the current position with the authority that sets it.

IFSCA — International Financial Services Centres Authority — The regulator for all financial services in GIFT IFSC.
Income Tax Department, Government of India — The Income-tax Act, including Section 10(4D), and TCS rules.
RBI — FAQs on the Liberalised Remittance Scheme — The annual limit and permitted purposes for resident Indians.
IRS — About Form 8621 (PFIC reporting) — US reporting for shareholders of passive foreign investment companies.