How GIFT City Works for Investors: Mutual Funds, Tax Incentives and Capital Gains

GIFT City (Gujarat International Finance Tec-City) is India’s attempt to build a global-grade financial hub on Indian soil, the kind of place where international financial business (usually done in centres like Singapore, Dubai or London) can be done from India, in a regulated, foreign-currency-friendly environment. The heart of it is the IFSC.

What exactly is the IFSC inside GIFT City?

IFSC = International Financial Services Centre. It’s a special jurisdiction inside GIFT City meant for cross-border financial services: banking, capital markets, insurance, asset management, fintech, aircraft leasing and more.

And unlike mainland India where different regulators control different parts of finance, IFSC is overseen by one unified regulator: IFSCA (International Financial Services Centres Authority).

Why the government is pushing GIFT City

India has long been a large market but much of the “international” financial activity linked to Indian money and Indian businesses has historically happened outside India. IFSC is designed to bring that activity back without compromising on global standards and to make it easier for global institutions to operate from India.

The big attraction: taxation and incentives

A) Tax holiday for businesses operating in IFSC (core benefit)

Units set up in IFSC can get a 100% income tax deduction on eligible business income for 10 years out of the first 15 years (this is commonly referenced under Section 80LA). It’s one of the biggest reasons financial institutions set up there.

B) Transaction tax relief on IFSC exchanges

On trades executed on IFSC exchanges, there is relief from certain transaction taxes (STT/CTT and stamp duty for eligible IFSC transactions). This reduces friction costs for trading and investing through IFSC platforms.

C) GST: why people say “offshore services are GST-free”

IFSC is structured so that many cross-border financial services are treated like exports, and IFSC frameworks also provide GST relief for certain services, which is why brochures often say there is no GST on services in this context (the exact applicability depends on the service and structure).

D) Non-residents and IFSC: special exemptions show up frequently

A recurring theme in IFSC tax policy is making it attractive for non-residents to participate. For example, tax materials from IFSCA highlight exemptions around interest/lease payments and specific capital gains scenarios for non-residents in certain IFSC activities (notably aircraft/ship leasing) and extensions of policy timelines (sunset extensions).

E) Minimum Alternate Tax (MAT)

Companies established as units in GIFT IFSC are subject to MAT at a rate of 9% of book profits, with exceptions for certain companies.

F) Capital Gains Tax Exemptions

Transfers of specified securities listed on GIFT IFSC exchanges by non-residents are exempt from capital gains tax.

Important note: These benefits are not one blanket rule for everything. IFSC tax provisions are a patchwork of specific sections, conditions, and timelines. Always read the offering document or take professional advice for the exact structure you are using.

Where mutual funds and “fund investing” fits into GIFT City

When people say “mutual funds in GIFT City”, they usually mean one of these:

A) “Outbound” funds for Indian investors (investing outside India via IFSC)

Some IFSC fund structures are designed for resident investors who want overseas exposure through products housed in IFSC.

A useful way to think about taxation here is: many such vehicles are set up as trust structures, and in practice, tax may be discharged at the fund/trust level depending on how the structure is set up; the investor experience can differ from the typical Indian mutual fund model.

Over the last few years, several India-domiciled mutual fund schemes that invest overseas have had to pause fresh subscriptions or restrict inflows. The main reason is that the industry has repeatedly run into the regulatory ceilings on overseas investments (an industry-wide cap and separate sub-limits), which are overseen through the RBI/SEBI framework.

Where GIFT City fits in for Indian Residents who wants to invest in overseas MF?

Many Indian investors want global diversification through mutual funds, but several India-domiciled international schemes have had to pause or limit fresh inflows after the industry hit the permitted overseas investment ceilings.

One alternative is investing through GIFT City (IFSC), where fund structures that invest abroad are not constrained in the same way as domestic mutual fund international schemes.

For a resident Indian, investment is typically made through the Liberalised Remittance Scheme (LRS), under which an individual can remit up to $250,000 per financial year.

B) “Specified fund” regime and retail schemes/ETFs in IFSC

Recent policy updates have aimed to make IFSC fund structures easier to run. IFSCA’s bulletin notes changes linked to the Finance Act, 2025, including easing conditions around the Specified Fund Tax Regime for retail schemes/ETFs in IFSC and enabling tax-neutral relocation provisions for certain fund moves.

C) Fund Management Entities (FMEs): why big asset managers are setting up in GIFT

To run funds from IFSC, entities register as FMEs under IFSCA’s ecosystem. IFSCA has also published updated material explaining how fund managers can launch/manage schemes, including models that reduce entry barriers for global fund managers.

And yes, mainstream names are taking approvals to operate in GIFT IFSC as fund management entities.

What benefits does GIFT City create — and for whom?

For India (the “why this matters” angle)

• More financial activity stays onshore (even if it is “international” in nature).
• Job creation in finance, fintech, compliance, legal, accounting and technology.
• A deeper ecosystem: banking units, insurance players, funds, exchanges, service providers.

For financial firms (banks, brokers, insurers, fund houses)

• Tax holiday improves economics.
• Unified regulator under IFSCA can mean faster, more coherent approvals for cross-sector products.
• Access to global clients and foreign-currency business lines.

For investors

• Potential access to global-market products from an India-based jurisdiction (depending on the product structure).
• Potentially lower friction costs on certain IFSC market transactions.
• A growing set of IFSC funds and platforms as more entities register and launch.

What should a retail investor check before putting money into any “GIFT City” product?

Use this quick checklist:

1. What is the product type?
   Mutual fund-like retail scheme, ETF, AIF, PMS-like structure, or a feeder fund?
2. Who is the regulator and where is it domiciled?
   In IFSC, the regulator is IFSCA, but the product structure still matters.
3. How will taxation work for you?
   Is tax paid at the fund level (trust pays) or will you pay when you receive income/capital gains?
4. What currency exposure are you taking?
   Many IFSC products are foreign-currency oriented. Currency can lift returns or cut them.
5. Liquidity and exit
   Can you redeem daily like a normal mutual fund, or is it periodic/locked?
6. Costs and reporting
   Platform fees, fund expenses, and how statements/tax documents are provided.

Conclusion: why GIFT City matters at this stage

Think of GIFT City as India building a financial airport for international money flows with simpler regulation under IFSCA, strong tax incentives for IFSC units, and a growing pipeline of market products and funds.

For businesses, it improves the economics of running international financial services from India. For investors, it opens more routes to global opportunities, but only if you understand the product structure, taxation method, and currency exposure before investing.