GIFT City / IFSC (International Financial Services Centre)

By Manu Rao | Updated March 2026

What Is GIFT City / IFSC?

GIFT City (Gujarat International Finance Tec-City) is India's first and only operational International Financial Services Centre (IFSC), located in Gandhinagar, Gujarat. Think of it as India's answer to Dubai International Financial Centre (DIFC), Singapore, or Luxembourg — a special economic zone dedicated to international financial services, with its own regulatory framework, tax incentives, and operational rules that are distinct from the rest of India.

The IFSC within GIFT City allows financial institutions to operate in foreign currencies, serving customers outside India (and in certain cases, within India) with a regulatory and tax framework that is competitive with global financial centres. Since its establishment, GIFT IFSC has attracted over 500 registered entities including global banks, fund managers, insurance companies, fintech firms, and aircraft leasing companies.

Legal Framework

Establishment and Governance

• Special Economic Zones Act, 2005 — GIFT City operates as a multi-services SEZ under the SEZ Act. The IFSC is carved out within this SEZ.
• International Financial Services Centres Authority (IFSCA) Act, 2019 — Established the IFSCA as a unified regulator for all financial services within IFSCs. Before IFSCA, entities in GIFT IFSC were regulated by multiple domestic regulators (RBI, SEBI, IRDAI, PFRDA). The IFSCA consolidated this into a single-window regulatory authority.
• IFSCA Regulations — The IFSCA has issued comprehensive regulations covering banking, insurance, fund management, securities markets, aircraft leasing, global treasury centres, and fintech. Key regulations include:

• IFSCA (Fund Management) Regulations, 2022
• IFSCA (Banking) Regulations, 2020
• IFSCA (Insurance) Regulations, 2021
• IFSCA (Finance Company) Regulations, 2021
• IFSCA (Global In-House Centres) Regulations, 2024
• IFSCA (Bullion Exchange) Regulations, 2020

Tax Framework

• Section 80LA of the Income Tax Act — Provides a 100% tax deduction on income earned by IFSC units for 10 consecutive years out of a 15-year period from the date of commencement of operations.
• Section 10(4E), 10(4F), 10(4G) — Exempt specific categories of income earned by non-residents from transactions on IFSC exchanges.
• Section 115AD — Special provisions for income of Fund Management Entities (FMEs) in IFSC.
• Finance Act, 2024 amendments — Extended and enhanced tax benefits for IFSC units, including ship leasing, aircraft leasing, and insurance.
• GST exemptions: Services provided within GIFT IFSC are exempt from Goods and Services Tax, as the IFSC is treated as a separate customs territory (outside the domestic tariff area).

Key Activities Permitted in GIFT IFSC

Tax Benefits in Detail

The tax incentives make GIFT IFSC one of the most attractive financial centres in Asia:

For IFSC Units

• 100% income tax exemption for 10 out of 15 years (Section 80LA). This applies to profits from IFSC activities conducted in foreign currency.
• No GST on services provided within IFSC or to entities outside India.
• No Securities Transaction Tax (STT) on trades executed on IFSC exchanges.
• No Commodities Transaction Tax (CTT) on commodity derivatives traded on IFSC exchanges.
• Zero stamp duty on instruments executed within GIFT IFSC (state government exemption).
• Minimum Alternate Tax (MAT): IFSC companies pay MAT at 9% (vs. 15% for domestic companies). Companies under the new tax regime (Section 115BAA/BAB) are exempt from MAT entirely.

For Non-Resident Investors

• Capital gains tax exemption: No tax on capital gains arising from transfer of specified securities, units of investment funds, or derivatives traded on IFSC exchanges (Section 10(4E)).
• Interest income exemption: Interest earned on deposits in IFSC Banking Units is exempt (Section 10(4F)).
• Dividend exemption: Dividends from companies listed exclusively on IFSC exchanges are exempt from tax for non-residents.

Comparison: GIFT IFSC vs. Domestic India

Fund Management in GIFT IFSC

One of the most significant use cases for foreign investors. The IFSCA (Fund Management) Regulations, 2022 allow three categories of Fund Management Entities (FMEs):

• Registered FME (non-retail): Can manage funds from accredited investors and institutional investors. Minimum net worth: USD 75,000.
• Registered FME (retail): Can offer schemes to retail investors. Minimum net worth: USD 500,000.
• Authorised FME: For large fund managers managing portfolio management, discretionary services, and investment advisory. Minimum net worth: USD 5 million.

The advantages for global fund managers:

• Tax-efficient pooling vehicle: Funds set up in GIFT IFSC can pool capital from global investors tax-efficiently, avoiding the cascading tax issues that arise with domestic AIFs.
• Pass-through status: Investment funds in GIFT IFSC get pass-through tax treatment, meaning the fund itself is not taxed — income is taxed only in the hands of investors.
• Relocation of offshore funds: The government has encouraged relocation of India-focused offshore funds (currently based in Mauritius, Singapore, or Luxembourg) to GIFT IFSC through safe harbour provisions and simplified regulatory pathways.

How This Affects Foreign Investors in India

As an Investment Route

Foreign investors can use GIFT IFSC as a gateway to Indian markets. By routing investments through an IFSC fund or IFSC banking unit, investors can benefit from zero capital gains tax on IFSC exchange-traded securities and access Indian equity and debt markets through the international exchange platforms.

As an Operational Base

Global financial institutions can set up IFSC Banking Units, insurance offices, or fund management entities in GIFT City to serve their Asia-Pacific or global clients. The tax holiday (10 years), zero GST, and unified regulation (single regulator — IFSCA) make operations simpler and cheaper than in domestic India.

Aircraft and Ship Leasing

India is the world's third-largest aviation market, yet most aircraft leasing to Indian airlines has historically been done through Ireland, Singapore, or Hong Kong. GIFT IFSC offers a competitive alternative: zero GST on lease rentals, reduced withholding tax on lease payments from Indian airlines to IFSC lessors, and an IFSCA-specific regulatory framework for aircraft registration and deregistration.

Global Treasury Operations

MNCs with Indian operations can centralise their global treasury functions in GIFT IFSC — managing intercompany loans, cash pooling, FX hedging, and investment management in a tax-efficient, foreign-currency-denominated environment. This is especially relevant for companies with significant ECB and cross-border lending activities.

Setting Up in GIFT IFSC: Process

1. Apply to IFSCA: Submit the application through the IFSCA Single Window IT System (SWIS) for the relevant activity category (banking, fund management, insurance, fintech, etc.).
2. Approval: IFSCA processes applications within 15-30 business days for most categories. Fund management entity registration can be completed in as little as 5-7 working days.
3. Incorporation: Set up a company (or branch/unit) under the Companies Act or as an LLP. IFSC units can be branches of foreign companies or Indian subsidiaries.
4. Commence operations: Open accounts with IFSC Banking Units, obtain necessary licences, and begin operations in foreign currency.

Common Mistakes

• Assuming GIFT IFSC is an offshore centre. GIFT IFSC is physically in India and governed by Indian law (through IFSCA). It is not an offshore jurisdiction. Investments from GIFT IFSC into domestic India are treated as FDI and must comply with FEMA norms.
• Confusing GIFT IFSC with a regular SEZ. While GIFT City includes an SEZ, the IFSC within it has a distinct regulatory and tax framework governed by IFSCA. SEZ benefits and IFSC benefits are different — an IT company in GIFT SEZ (but outside the IFSC) does not get IFSCA regulation or IFSC tax benefits.
• Not planning the 10-year tax holiday window. The Section 80LA benefit is available for 10 out of 15 years from commencement. Choose the 10 years strategically — deferring the benefit to years when profitability is highest maximises the tax saving.
• Ignoring transfer pricing for IFSC transactions. Transactions between an IFSC unit and its Indian parent/affiliate are subject to transfer pricing rules. The IFSC unit must demonstrate arm's length pricing for services provided to or received from associated enterprises.
• Underestimating physical presence requirements. IFSCA requires entities to maintain a physical office in GIFT City with adequate staff. A brass-plate operation will not satisfy regulatory requirements.

Practical Example

AsiaCapital Partners, a Singapore-based fund manager, wants to launch an India-focused equity fund. Historically, such funds were domiciled in Mauritius or Singapore. AsiaCapital explores the GIFT IFSC option:

1. Registration: AsiaCapital applies to IFSCA for a Registered FME (non-retail) licence. With a net worth of USD 2 million and a strong track record, approval is granted in 12 working days.
2. Fund setup: AsiaCapital IFSC sets up a Category III Alternative Investment Fund under IFSCA regulations, targeting USD 50 million from institutional investors in Singapore, Hong Kong, and the UAE.
3. Tax treatment: The fund invests in Indian listed equities through the India INX exchange (IFSC). Capital gains on these securities traded on the IFSC exchange are exempt from Indian capital gains tax for non-resident investors. The fund management fee income earned by AsiaCapital IFSC is exempt from income tax for 10 years under Section 80LA. No GST applies on the management fees.
4. Comparison with Mauritius: If the fund were domiciled in Mauritius, capital gains on Indian shares acquired after April 2017 would be fully taxable in India. The GIFT IFSC route provides a clear tax advantage, plus the fund is regulated by IFSCA (an Indian regulator) — eliminating substance concerns that arise with Mauritius/Singapore structures.
5. Investor reporting: AsiaCapital provides investors with statements showing gross returns of 18% and net returns of 16.5% (after management fees but with zero Indian tax leakage). An equivalent Mauritius-domiciled fund would have shown net returns of ~14.8% after Indian capital gains tax.

Key Takeaways

• GIFT City IFSC is India's international financial hub — physically in Gujarat, but with a distinct regulatory and tax regime governed by IFSCA
• 10-year income tax holiday (Section 80LA), zero GST, zero STT, and zero capital gains for non-residents on IFSC exchange trades
• Fund managers, banks, insurers, aircraft lessors, and fintech firms can set up operations with a single-window IFSCA approval
• Fund Management Entities can be registered in as little as 5-7 working days with minimum net worth of USD 75,000
• GIFT IFSC is increasingly replacing Mauritius and Singapore as the preferred domicile for India-focused funds
• IFSC units must maintain genuine physical presence — not a brass-plate setup
• Transactions between IFSC units and Indian affiliates are subject to transfer pricing rules

Considering GIFT IFSC for your fund, financial services business, or global treasury operations? Beacon Filing assists with IFSCA registration, fund structuring, compliance setup, and ongoing regulatory filings in GIFT City.