GIFT City in India: Ultimate Tax Benefits Guide for NRI Investors (2025)

TL;DR

• Full Tax Exemptions on Derivatives
  Under Section 10(4E) (Finance Bill 2025), GIFT City offers 100% income-tax exemption on profits from OTC derivatives and offshore derivative instruments.
• Favorable IFSC Rates
  Capital gains taxed at 9–15% and dividend income at just 7.5–10%, versus 20–30% on mainland investments.
• No Return-Filing for AIFs
  NRIs investing solely through Category I/II AIFs avoid individual Indian tax-return filing and PAN requirements.
• Multiple Investment Routes
  Choose between FPI (15% cap gains, 7.5% dividends), AIFs (fund-level taxation), PMS (individual taxation), or Gift City mutual funds (currency flexibility, no TDS).
• Zero Transaction Taxes
  Exemptions from STT, commodity transaction tax, stamp duty, and GST on IFSC transactions.
• Corporate & Insurance Holidays
  100% tax holiday for businesses for 10 of 15 years; life-insurance maturity proceeds fully exempt when premiums ≤ 10% of sum assured.
• Streamlined Repatriation
  Foreign currency investments and repatriation with minimal compliance, no currency conversion requirement.
• Strategic Planning Keys
  Leverage DTAA benefits with a Tax Residency Certificate; time bond listings (4% vs. 9% rates) to maximize efficiency.
• Growing Ecosystem
  Expected expansion of permitted instruments, lower minimum thresholds, and rising trading volumes make GIFT City increasingly attractive.

 

GIFT City in India has emerged as a tax-friendly destination for non-resident investors, offering full income tax exemptions on profits from Over-the-Counter (OTC) derivative contracts. The Finance Bill 2025 amendments have widened the scope of these exemptions under Section 10(4E) of the Income Tax Act to include income from offshore derivative instruments, creating a valuable opportunity for NRIs looking to maximize their investment returns.

As India’s first International Financial Services Center (IFSC), GIFT City provides tax advantages that stand out in the global investment landscape. Located in Gujarat, this financial hub serves as a tax-efficient gateway for international investors seeking exposure to Indian markets. NRIs can access these benefits through multiple investment channels, including foreign portfolio investments (FPI) and GIFT funds, enjoying favorable tax rates – 15% on capital gains and just 7.5% on dividends through the FPI route.

Simplified Compliance for NRIs: When investing exclusively through specific Alternative Investment Funds (AIFs) in GIFT City, NRIs can avoid filing tax returns in India altogether, reducing administrative burdens significantly.

Tax Benefits for Businesses and Insurance: Companies operating in GIFT City receive a 100% tax holiday for 10 out of 15 years. For life insurance policies issued from GIFT City, full tax exemption applies on maturity proceeds when the premium doesn’t exceed 10% of the sum assured, eliminating previous premium amount restrictions.

Understanding GIFT City’s location and structure, along with strategies to capitalize on derivative income opportunities, is essential knowledge for any NRI investor seeking tax efficiency in 2025. These tax advantages make GIFT City an investment destination worth serious consideration for non-residents looking to optimize their financial outcomes.

Understanding the tax structure of GIFT City for NRIs

“GIFT City provides significant tax advantages, including lower tax rates on capital gains and exemptions on certain investment incomes.” — IDFC FIRST Bank Editorial Team, Official content team, IDFC FIRST Bank (leading Indian private sector bank with international presence in GIFT City)

The tax structure of GIFT City offers NRIs significant financial advantages compared to mainland India investments. These tax provisions create unique opportunities for non-resident investors seeking to optimize their tax position.

What is Section 10(4E) and how it applies

Section 10(4E) of the Income Tax Act stands as a key provision for NRIs focused on tax efficiency. This section provides complete tax exemption on income from non-deliverable forward contracts, offshore derivative instruments, and over-the-counter derivatives. The Finance Bill 2025 has enhanced these benefits by including exemptions for income distributed from OTC derivatives.

In the past, these exemptions were limited to transactions with offshore banking units. Now, the scope has expanded to include transactions with Foreign Portfolio Investors operating in GIFT City. This expansion allows non-residents to interact with FPIs within GIFT City while enjoying full tax exemption on their derivative transaction income.

Tax-free instruments: Derivatives, P-Notes, and more

GIFT City presents an impressive selection of tax-free investment instruments for non-resident investors. NRIs can earn completely tax-free derivative income through the fund route in GIFT City. Participatory Notes (P-Notes), which enable overseas investors to invest in Indian securities without SEBI registration, may also receive tax exemption.

Additional tax benefits include:

•       Interest earned from money lent to businesses in GIFT City is fully tax-free
•       Bonds listed on IFSC exchanges enjoy concessional tax rates – 4% for bonds listed before July 1, 2023, and 9% for those listed after

The tax advantages extend beyond income tax exemptions. Transactions in GIFT City are exempt from:

•       Securities Transaction Tax (STT)
•       Commodities Transaction Tax
•       Stamp duty
•       GST

How the IFSC status changes tax treatment

As an International Financial Services Center, GIFT City receives distinct tax treatment compared to mainland India. Dividend income for NRIs faces just 10% tax in GIFT City, half the 20% rate applied to mainland India investments. Capital gains from IFSC-listed shares and derivatives are taxed at only 9%, considerably lower than the 20-30% rates that apply elsewhere in India.

The IFSC status permits transactions between non-residents without currency conversion requirements. This creates an efficient environment where profits, dividends, and investments can move freely to investors’ home countries.

GIFT City’s distinctive tax structure makes it an increasingly attractive destination for NRIs focused on maximizing returns while reducing their tax obligations.

Comparing Investment Routes: FPI, AIF, PMS, and Gift City Funds

NRIs planning to invest in GIFT City have four distinct investment pathways available, each with unique advantages and limitations. Choosing the right investment route requires understanding the tax implications and structural differences between these options.

FPI Route: Limits and Tax Treatment

The Foreign Portfolio Investment pathway places specific caps on NRI participation. Your total investment through this route cannot exceed 50% of the scheme size, with individual investments limited to 25%. From a tax standpoint, this route applies a 15% effective tax rate on capital gains, while dividend income faces just 7.5% taxation.

Key Advantage: FPI investors don’t need to obtain a Permanent Account Number (PAN) in India. Additionally, income earned through this route remains outside GST jurisdiction, further reducing your tax obligations.

AIF Route: Fund-Level Taxation and Exemptions

Alternative Investment Funds in GIFT City deliver superior tax efficiencies. Category I and II AIFs provide a tax pass-through structure that eliminates the double taxation issues you might encounter elsewhere. The fund handles all taxation matters, freeing you from individual tax planning concerns for these investments.

Non-resident investors receive significant compliance benefits when investing exclusively through Category I or II AIFs:

•       Complete exemption from filing tax returns in India
•       No GST on services provided to offshore individuals
•       Fund management fees are subject to just 18% tax

PMS Route: Individual Taxation and Compliance

Unlike the AIF pathway, Portfolio Management Services calculates capital gains in your individual name, requiring each investor to obtain a PAN. The tax landscape for PMS investments changed substantially in 2024:

•       Short-term capital gains: 24% effective rate (up from 15%)
•       Long-term capital gains: 15% (up from 10%)
•       Dividends: 20% base rate, rising to an effective 24% with surcharges

Despite these higher rates, investors from treaty jurisdictions can still benefit from double taxation avoidance through tax rebates.

Gift City Mutual Funds: Global Exposure and Ease

Gift City funds offer unique currency flexibility, allowing you to invest and withdraw in your foreign currency. This protects your returns from Indian rupee depreciation while eliminating TDS deductions that apply to traditional Indian mutual funds.

These funds solve a particular challenge for NRIs in the US and Canada, who typically can only transact in Indian mutual funds when physically present in India. With Gift City funds, you can manage your investments regardless of your location.

Most Gift City funds currently operate through the AIF structure, with a minimum investment threshold of $150,000. While this high entry point restricts accessibility, it provides substantial benefits for those able to meet it, including tax efficiencies and currency protection.

How to maximize tax benefits through strategic planning

Maximizing tax benefits from GIFT City requires a thoughtful approach based on your financial objectives. By selecting the right investment route and understanding available exemptions, you can significantly reduce your tax burden while meeting your wealth creation goals.

Choosing the right route based on your goals

The investment route you select should align with your specific financial objectives and preferences. For those focused on long-term capital appreciation with minimal tax complications, the AIF route stands out. With this approach, all taxation occurs at the fund level, removing the need for individual tax planning.

If your priorities include active portfolio management and ready access to your investments, the PMS route might be more suitable, though this requires obtaining a PAN and managing individual taxation.

For derivative exposure: High-net-worth individuals should consider that derivative income through GIFT City fund routes enjoys complete tax exemption. Unlike the FPI route, which caps NRI participation at 25% individually and 50% overall, GIFT City funds allow unrestricted NRI participation.

Your investment timing can also impact tax efficiency. Bond investments have different tax implications based on when they were listed – those listed before July 1, 2023 face a 4% tax rate, while newer listings are taxed at 9%.

Using treaty benefits and DTAA provisions

India’s Double Taxation Avoidance Agreements with over 90 countries offer valuable protection against paying taxes twice on the same income. These agreements become particularly advantageous for NRIs residing in zero capital gains tax jurisdictions like UAE, Singapore, and the Netherlands.

To utilize these treaty benefits, you’ll need to secure a Tax Residency Certificate from your country of residence. This document serves as official verification of your tax status. Additionally, prepare Form 10F and Form 67 for submission to Indian tax authorities when claiming treaty benefits.

Avoiding double taxation and filing requirements

NRIs who receive income solely from Category I or II AIFs in GIFT City enjoy a significant compliance advantage – exemption from filing tax returns in India, provided the AIFs have already withheld appropriate taxes. In these specific scenarios, you’re also exempt from obtaining a PAN.

Beyond income tax benefits, GIFT City transactions benefit from several tax exclusions including:

•       Securities Transaction Tax
•       Commodities Transaction Tax
•       Stamp duty
•       GST

Interest earned from lending to IFSC units remains entirely tax-exempt, while dividend income faces a reduced 10% tax rate, compared to the 20% applied to mainland India investments.

Future outlook: What’s next for GIFT City and NRI investors

GIFT City shows promising growth potential for NRI investors who follow its development closely. This financial hub in Gujarat continues to evolve, with several key developments expected in the near future.

Upcoming policy changes and regulatory trends

The International Financial Services Center Authority (IFSCA) is working to streamline investment frameworks for NRIs in GIFT City. New regulatory changes will likely enhance flexibility for derivative income opportunities, making these investments more accessible and efficient. Additionally, upcoming tax treaties with key countries may soon offer extra benefits for cross-border investments through GIFT City.

Regulators are exploring the expansion of permitted investment categories and considering lower minimum investment thresholds for certain fund structures. This shift would open doors for more NRI investors who previously found entry barriers too high. Several financial instruments already common in established global markets may receive regulatory approval in the coming quarters, further diversifying investment options.

Expected growth in IFSC exchanges

GIFT City exchanges will likely experience significant growth in trading volumes and participation. NRI interest in derivative products, global funds, and alternative investments is expected to drive much of this expansion. As financial institutions continue establishing operations in GIFT City, the resulting ecosystem will benefit from better liquidity and a wider range of investment products.

Market experts predict substantial growth in GIFT-based fund offerings, with numerous global asset managers planning to enter this space. The bond listing segment should also flourish as international issuers recognize the tax advantages offered by GIFT City platforms.

How NRIs can stay updated and compliant

For NRIs interested in GIFT City investments, staying informed about regulatory changes is essential for success. The most reliable information sources include:

•       The official IFSCA website, which publishes all regulatory updates and circulars
•       Specialized law firms with GIFT City expertise
•       Global accounting firms offering IFSC-specific advisory services

Beyond tracking regulations, NRIs should periodically review their investment structures as tax treaties evolve. Working with advisors who understand both your residence country and GIFT City regulations helps ensure your investments remain properly structured and compliant with all applicable laws.

How Investmates Empowers NRI Investors

For NRIs seeking a seamless way to manage cross-border investments, InvestMates.io delivers a secure, all-in-one wealth management platform tailored to your needs. With bank-level security protecting your financial data, you can invest with confidence from anywhere in the world. Key features include:

• Unlimited Account Linking: Integrate and track assets across 100+ Indian and US institutions in one unified dashboard.
• Real-Time Market Tracking: Stay updated on live prices and market movements for stocks, mutual funds, and more.
• Personalized Portfolio Management: Leverage advanced analytics to optimize allocation based on your risk profile and investment goals.
• Tax & Repatriation Guidance: Access expert insights on capital gains, TDS, and repatriation procedures to keep you compliant with both Indian and foreign tax laws.
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Ready to take control of your global portfolio? Download the InvestMates app today and start making confident investment decisions—wherever you are!

 

Conclusion

GIFT City emerges as a prime destination for NRIs seeking tax advantages and global market access. The expanded Section 10(4E) exemptions offer exceptional opportunities for derivative income while removing multiple transaction taxes. The impressive tax structure – from the 100% tax holiday for businesses to complete exemptions on specific investment incomes – firmly establishes GIFT City as a leading financial center for non-resident investors.

Your choice between FPI, AIF, PMS, and GIFT City fund routes should align with your specific investment goals and tax circumstances. AIFs stand out with their fund-level taxation and freedom from filing requirements, making them particularly suitable for investors with a long-term perspective. Strategic planning using DTAA provisions can further enhance your tax benefits, especially if you reside in jurisdictions with zero capital gains tax.

Future Developments: GIFT City’s regulatory framework will continue to evolve, with additional financial instruments gaining approval and investment thresholds potentially decreasing. Staying informed about these changes is crucial for optimizing your investment strategy. Visit Investmates to access real-time updates on GIFT City regulations and discover investment opportunities tailored to your financial objectives.

GIFT City represents a significant advancement in India’s financial landscape, providing NRIs with tax-efficient investment pathways previously unavailable. The combination of tax benefits, regulatory simplicity, and international market access makes these opportunities valuable for any NRI looking to build wealth effectively while maintaining compliance with both Indian and international tax laws.

The tax advantages of GIFT City, when properly understood and utilized, can significantly improve your investment outcomes. By selecting the appropriate investment route and staying informed about regulatory developments, you can position yourself to benefit from this innovative financial ecosystem for years to come.

FAQs

Q1. What are the main tax benefits for NRIs investing in GIFT City? GIFT City offers significant tax advantages for NRIs, including complete tax exemption on income from certain derivative contracts, lower tax rates on capital gains, and a 100% tax holiday for 10 out of 15 years for companies operating there.

Q2. Can NRIs invest in global financial instruments through GIFT City? Yes, NRIs can invest in various global financial instruments through GIFT City’s international exchanges. These include mutual funds, portfolio management services (PMS), and alternative investment funds (AIFs), offering opportunities to build wealth both in India and abroad.

Q3. How does investing through GIFT City compare to mainland India for NRIs? Investing through GIFT City offers several advantages over mainland India for NRIs. These include lower tax rates on capital gains and dividends, exemptions from various transaction taxes, and the ability to invest and withdraw in foreign currency without currency conversion requirements.

Q4. Are there any tax-free investment options for NRIs in GIFT City? Yes, GIFT City offers several tax-free investment options for NRIs. These include income from certain derivative contracts, interest earned from lending to businesses in GIFT City, and investments through specific Alternative Investment Funds (AIFs) that don’t require filing tax returns in India.

Q5. How can NRIs stay updated on regulatory changes in GIFT City? NRIs can stay informed about regulatory changes in GIFT City by regularly checking the official IFSCA website, consulting with specialized law firms with GIFT City expertise, and working with global accounting firms that offer IFSC-specific advisory services. It’s crucial to review investment structures periodically as tax treaties and regulations evolve.