GIFT City Tax Benefits for Individuals: Who Is Actually Exempt

Search for "is GIFT City tax free" and most of what comes back is written by banks and platforms that sell GIFT City products, almost always for NRIs and almost never with a section number.

The honest answer has three parts. First, India's tax law contains no rule that exempts income because it arises in GIFT City. It contains a list of separate exemptions, each naming a type of income, a type of person and a set of conditions. Second, the person named is nearly always a non-resident. Third, several of the best-known benefits are not the investor's at all: they belong to the fund or to the business operating in the International Financial Services Centre (IFSC).

By December 2025, IFSCA's own data showed IFSC fund schemes had raised USD 32.13 billion in commitments from 6,721 investors; among individual investors, 51% were NRIs or OCIs and 45% were resident Indians. Nearly half, in other words, are people the headline exemptions were not written for.

This guide sets out GIFT City tax benefits as a table: who you are, what you hold, and the Indian tax result, with the section behind each cell under both the Income-tax Act, 2025 and the 1961 Act it replaced. It is general information as of 7 October 2026, not tax advice, so check your own position with a qualified tax adviser before you act.

GIFT City's tax regime was never passed as one law. It was added to the Income-tax Act a clause at a time, usually to pull a specific offshore activity back to India.

• 2005. The Special Economic Zones Act defines an IFSC. The oldest relief dates from here: interest on deposits made on or after 1 April 2005 with an offshore banking unit is exempt for non-residents and for persons not ordinarily resident.
• 2015–2016. IFSC banking units are set up under an RBI scheme dated 1 April 2015. In July 2016 CBDT Circular 26/2016 confirms that the deposit interest exemption and the no-TDS rule cover them, and the Finance Act, 2016 removes securities transaction tax (STT) on foreign currency trades on IFSC exchanges.
• 2016 to 2021, in stages. The 1961 Act gains section 47(viiab) for non-residents selling specified securities on IFSC exchanges, section 10(4D) for the specified fund, section 10(23FBC) for its unit holders and section 10(4E) for non-deliverable forwards. IFSCA starts work as the single regulator in April 2020.
• 2024. The Finance (No. 2) Act, 2024 brings retail schemes and exchange traded funds into the specified fund definition and resets general capital gains rates to 12.5% and 20%. On 10 July 2024 the RBI lets resident individuals use the Liberalised Remittance Scheme (LRS) for all permissible purposes in an IFSC.
• 2025. The Finance Act, 2025 lifts the premium caps on life insurance policies issued by IFSC Insurance Offices from 1 April 2025 and pushes several IFSC sunset dates to 31 March 2030.
• 2026. The Income-tax Act, 2025 applies from 1 April 2026 and renumbers everything. The Finance Act, 2026 extends the tax holiday for IFSC units to 20 consecutive years out of 25.

Most articles and offer documents still quote 1961 Act numbers. From tax year 2026-27 the same rules sit elsewhere. The mapping below is matched by reading the provisions; circulars and notifications issued under the old Act continue under the new one so far as they are not inconsistent with it.

Each cell gives the Indian tax result only. "Non-resident" covers NRIs, OCIs and foreign nationals who are non-resident for Indian tax purposes in the year; "resident" means resident and ordinarily resident.

Your column depends on your residential status under the Income-tax Act for that tax year, which turns on days spent in India. It is not decided by your passport, your OCI card or your bank's NRI label, and it can differ from your status under exchange control law. A foreign national who is non-resident for the year reads the same column as an NRI.

There is also a middle status, resident but not ordinarily resident (RNOR), which many returning NRIs hold for a short period. The deposit interest exemption names it expressly. Other entries do not, so treat RNOR as its own question for your adviser.

Most writing on GIFT City tax benefits for NRIs stops at a list. The detail below shows what each GIFT City tax exemption covers and where it stops.

Interest that a non-resident, or a person not ordinarily resident, receives on a deposit with an offshore banking unit is left out of total income by Schedule IV, Sl. No. 8 of the 2025 Act. The bank deducts no tax under section 393(8). CBDT's Circular 26/2016 settled that an IFSC banking unit is an offshore banking unit for both rules.

Two points are often misstated. The basis is the Income-tax Act, not the exchange control treatment of GIFT City as offshore. And the relief is tied to your status in the year the interest is received, so it ends once you become ordinarily resident.

This is the exemption behind most "tax-free fund" claims. Schedule VI, Sl. No. 9 excludes any income a unit holder receives from a specified fund, and any income on transfer of its units.

Everything depends on the definition. A specified fund is an IFSC Category III AIF, retail scheme or ETF in which all units are held by non-residents, apart from units of the sponsor or manager and an allowance of up to 5% for holders who were non-resident when they invested and later became resident. A fund that takes resident money under LRS is outside the definition.

The exemption is at your level, and the fund itself can still pay tax, as explained further down. For a non-resident, GIFT City capital gains tax on redeeming units of a specified fund is nil in India.

Under section 70(1)(r), a sale by a non-resident on a recognised stock exchange in an IFSC, for consideration in foreign currency, is not regarded as a transfer when the asset is a bond or global depository receipt of the specified kind, a rupee denominated bond of an Indian company, a derivative, or a security the government has notified. Notification 16/2020 added foreign currency denominated bonds, mutual fund units, business trust units, foreign currency denominated equity shares and AIF units listed on an IFSC exchange. Check the current list before relying on it.

No transfer means no capital gain to tax. Separately, Schedule VI, Sl. No. 5 exempts a non-resident's income from non-deliverable forwards, offshore derivative instruments and over-the-counter derivatives entered into with an IFSC bank or an IFSC-based foreign portfolio investor, subject to prescribed conditions.

Section 113A of the Finance (No. 2) Act, 2004 switches off STT for foreign currency transactions on an IFSC exchange, whoever the investor is. Material published by IFSCA adds that commodities transaction tax, stamp duty and GST do not apply to those transactions; IFSCA's fund brochure tells readers to check the underlying notifications.

Not all GIFT City interest is exempt. Interest paid by an IFSC unit on its own borrowings since 1 September 2019 is exempt for a non-resident under Schedule VI, Sl. No. 12. Interest on a long-term or rupee denominated bond of an Indian company listed only on an IFSC exchange is different: it is taxed at 4% if the bond was issued between 1 April 2020 and 30 June 2023, and at 9% if issued on or after 1 July 2023, plus surcharge and cess.

Dividends that a non-resident receives from a company that is an IFSC unit are taxed at 10% under section 207, against 20% for other Indian dividends. A lower rate is a concession, not an exemption.

Life insurance proceeds are exempt in India only if the policy meets conditions, including a premium of no more than 10% of the sum assured and, for recent policies, an aggregate annual premium of no more than Rs 2.5 lakh for unit linked plans or Rs 5 lakh for other plans. Schedule II, Sl. No. 2 now says the two aggregate limits do not apply to a policy issued on or after 1 April 2025 by an IFSC Insurance Office. The 10% ratio still applies. The 2025 Budget memorandum explained the change as parity for non-residents buying cover from an IFSC office.

Schedule VI, Sl. No. 7 exempts a non-resident's income from a portfolio run by an IFSC portfolio manager and received in an account with an offshore banking unit, but only to the extent the income accrues outside India. Gains on Indian shares bought through such a portfolio are taxed like any other non-resident's: 20% short-term and 12.5% long-term above Rs 1.25 lakh on listed equity (sections 196 and 198).

IFSC Category I and II AIFs are pass-through vehicles under section 224. Circular 12/2023 confirms that a non-resident's share of income from offshore investments made through such a fund is not taxable in India. Income from the fund's Indian investments is taxed in the investor's hands.

GIFT City tax for resident Indians is simpler to state: you are taxed in India on your worldwide income, and none of the investor-level exemptions above names you. What you get is access, foreign currency exposure and lower transaction costs.

Interest on a foreign currency deposit with an IFSC banking unit is taxable at your slab rate. Gains on securities you sell on an IFSC exchange are capital gains under the normal rules, because section 70(1)(r) applies only to non-residents. One platform's guide treats foreign shares bought this way as unlisted, with a 24-month holding period, 12.5% tax on long-term gains and slab rates on short-term gains. Confirm how your own holdings are classified.

A resident individual funds a GIFT City account under LRS, within the USD 250,000 annual limit. The bank collects tax at source on LRS remittances above Rs 10 lakh in a financial year, at 20% where the purpose is investment. TCS is a prepayment, credited against your tax when you file. Non-residents funding from overseas or from NRE and FCNR accounts are outside LRS.

A fund that admits residents is not a specified fund. Most retail outbound funds are trusts that pay tax themselves. Business Standard reported in December 2025 that such funds pay about 14.95% on long-term gains from holdings of 24 months or more, 42.74% on short-term gains and 35.88% on dividends, with no further capital gains tax or TDS for the investor at redemption. Those figures come from fund executives and depend on each fund's structure, so read the tax section of the offer document.

Whether a resident must list GIFT City holdings in Schedule FA, the foreign assets schedule of the tax return, is not settled. The Economic Times reported on 17 July 2026 that one fund house tells investors to disclose their units as foreign assets while another says disclosure is not required because the fund is domiciled in India. Advisers quoted were split, and some funds have asked IFSCA to seek clarity from the tax department.

The cautious view is to disclose, since the money left under LRS. The opposing view is that exchange control law does not turn an Indian fund into a foreign asset under tax law. Until CBDT says which is right, take written advice.

On life insurance, the enacted wording does not mention residential status, but the Budget memorandum spoke only of non-residents, and an insurer's chief executive was quoted in February 2025 saying the position for residents was unclear. Treat it as unresolved.

Two layers of tax sit behind the investor.

A specified fund has its own exemptions under Schedule VI, Sl. Nos. 1 to 4: gains on assets traded on IFSC exchanges, gains on securities other than shares of an Indian-resident company, income from securities issued by non-residents, and certain securitisation trust income, each to the extent attributable to non-resident unit holders.

Whatever is not exempt is taxed in the fund under section 210: 10% on interest and dividends from securities, 20% on short-term gains on STT-paid listed equity, 30% on other short-term gains and 12.5% on long-term gains. A specified fund that buys Indian shares therefore pays Indian tax on its gains. Your exemption means you are not taxed a second time. It does not mean the return was untaxed.

The best-known GIFT City number is the tax holiday. Section 147 gives a unit of an IFSC a 100% deduction on its eligible business income. The Finance Act, 2026 lengthened it from 10 consecutive years out of 15 to 20 consecutive years out of 25 from tax year 2026-27, with business income taxed at 15% afterwards.

The "unit" is the bank, fund manager, broker or insurer operating in GIFT City. The holiday lowers its tax bill, and nothing in section 147 passes that through to you.

These rules reach investors through a few digital channels. An IFSC banking unit opens foreign currency accounts online for non-residents and, under LRS, for residents. Trades on NSE IX and India INX are electronic and settled in foreign currency.

On the tax side, the bank that sends an LRS remittance collects TCS automatically, and the credit is claimed in the return. A non-resident whose only Indian income is from a specified fund can, subject to conditions, be relieved from Indian tax compliance such as obtaining a PAN and filing a return. A resident has more to reconcile each year: TCS credits, foreign currency statements and the reporting question above.

Stripped of slogans, the GIFT City tax benefits that hold up are these:

1. Deposit interest without Indian tax or TDS. A non-resident or RNOR depositor with an IFSC banking unit receives foreign currency interest gross.
2. No second layer of tax on a specified fund. A non-resident unit holder is exempt on distributions and on redemption, so the only Indian tax is what the fund pays.
3. No capital gains on notified exchange-traded securities. A non-resident's sale of notified securities and derivatives on an IFSC exchange is not a transfer at all.
4. No transaction taxes for anyone. STT, CTT and stamp duty do not apply to IFSC exchange trades, which matters most to frequent traders.
5. Relief written into the Act. A PwC speaker quoted by Cafemutual made the point that these concessions sit in the statute and do not depend on which tax treaty your country has with India.

A table like this does three practical jobs. It turns a sales claim into a question you can check: which row is this product, which column am I in, and which section is being relied on? It tells you what to ask a fund before investing: is it a specified fund, can residents invest, and what tax does the fund pay on the assets it plans to hold? And it shortens the meeting with your tax adviser, because you arrive with the Indian position mapped and can spend the time on home-country tax and residency plans.

PMS Sahi Hai describes itself as an AI-powered research platform for PMS, AIF and GIFT City. It does not compute your tax, and it should not be read as doing so. What it offers on this topic is a set of pages that make the matrix easier to apply.

• A GIFT City hub written for NRIs. The GIFT City page sets out the dollar-in, dollar-out route and says STT, CTT and stamp duty are exempt. On capital gains it does not promise "tax-free"; it says treatment depends on the specific fund and your country of residence, which is the last row of the matrix.
• A shelf of GIFT City funds to shortlist from. The compare tool lists GIFT City strategies beside PMS and AIFs, with benchmark, minimum investment and a Nyra score on each fund page. Those pages do not tell you whether a fund is a specified fund, whether residents may invest, or what tax the fund pays. Take those three questions to the offer document.
• Nyra, with its limits stated. Nyra is described on the site as "an analytical tool, not a SEBI-registered Investment Adviser". Its methodology page says a highly scored strategy "can be completely wrong for your risk profile, horizon or tax position". A score ranks past performance and risk; it says nothing about which column of the matrix you sit in.
• Home-country pages. The DTAA by country page outlines how treaty relief works for six countries, and the PFIC page explains why US and Canadian residents need to look at pooled funds differently. Both say they are general information, not tax advice.
• Deeper reading on fund-level tax. Two existing guides cover the section 10(4D) fund exemption and the section 10(4E) relief in detail.

The site has no page on deposit interest, IFSC-listed bonds, insurance, TCS or Schedule FA. For those rows, this guide and your tax adviser are the reference.

• Your home country may tax it anyway. An Indian exemption binds only India. Most countries tax residents on worldwide income, and relief from double taxation usually works by crediting tax actually paid elsewhere, so interest and gains that are exempt in India may be taxable where you live. For US persons, a holding in a foreign pooled fund, GIFT City funds included, is presumptively a passive foreign investment company with its own reporting and tax rules. Treaties and the US rules are covered in separate guides.
• Residency changes the answer. Nearly every exemption is tested on your status for the year. A returning NRI moves from non-resident to RNOR and then to resident, and the deposit interest relief ends when ordinary residence begins.
• Tax inside the fund reduces returns. A specified fund investing in Indian shares pays 12.5% to 30% on gains; trust-form outbound funds for residents have reported rates above 40% on short-term gains.
• Open questions. Schedule FA reporting for residents, the insurance relief for residents, and the position of a specified fund unit holder who becomes resident are not answered by any CBDT statement we could find.
• Conditions and change. Several entries apply "subject to conditions as may be prescribed", notified lists are amended, and three Finance Acts since mid-2024 have changed this regime. IFSCA's own brochure tells readers to check CBDT, CBIC and Gujarat notifications before deciding.

GIFT City tax benefits are a set of exemptions with addresses on them. If you are a non-resident, the ones that matter are deposit interest from an IFSC banking unit, your income from a specified fund, and gains on notified securities sold on an IFSC exchange, plus the newer insurance relief. Even then, bond interest and dividends can carry Indian tax, the fund may be taxed before you are paid, and your country of residence has its own claim.

If you are a resident Indian, there is no personal GIFT City tax exemption to speak of. You get market access, foreign currency exposure and no STT, and you take on TCS, fund-level tax and a reporting question nobody has settled.

For both groups, the 20-year tax holiday is someone else's benefit. Read the row, read the column, then ask for the section. A comparison shelf such as PMS Sahi Hai's can help you shortlist funds, and Nyra can help you question them, but neither replaces the offer document or an adviser on tax.

Before you sign a GIFT City application form, find your row and your column in the matrix above and write down three things: your residential status for this tax year and next, whether the fund is a specified fund, and what tax the fund or issuer pays before you are paid. Then put those answers, and the question of what your home country will tax, to a qualified tax adviser. An hour of advice on the right questions costs less than finding out later that the exemption you were sold belonged to someone else.

If you are still choosing between funds, you can compare GIFT City, PMS and AIF strategies on PMS Sahi Hai, ask Nyra how a strategy has behaved against its benchmark, or book a 15-minute conversation with the team. Use them for the investment question, and keep the tax question with a qualified professional.