What GIFT City means for Indian investors

Most travelers have experienced shopping at an airport duty-free store: a space physically inside the country, but outside its usual customs rules. GIFT City applies a similar idea to finance. Located in Gandhinagar, it is home to India’s international financial services center [1], where financial institutions are treated as residents outside India under foreign exchange law, or FEMA regulations [2]. For Indian investors, this can reshape how they access and hold their international investments through GIFT City funds.

An Indian location with an offshore status

Under the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, a financial institution or their branches established in an IFSC are treated as a resident outside India ^[2]. These regulations also provide for such institutions to conduct business in foreign currencies^[2].

Hence, money sent from an Indian bank account to invest through GIFT City is treated as an outward remittance under the Liberalized Remittance Scheme (LRS), which allows each resident individual to remit up to US$250,000 per financial year ^[3][4].

One regulator for financial services

In the rest of India, financial products are regulated by different authorities depending on the product: banking by RBI, securities and mutual funds by SEBI, insurance by IRDAI and pensions by PFRDA. GIFT City works differently. The International Financial Services Centres Authority Act, 2019, brings the regulation of financial products, services and institutions permitted in an IFSC under a single authority, the International Financial Services Centres Authority (IFSCA), established in April 2020 ^[1][5].

IFSCA regulations set the framework for scheme categories, disclosures and investor protections. The scheme's offer document provides investors with key details on how the fund is structured.

How Indian residents invest

Indian companies can also invest in GIFT City funds as overseas portfolio investment (OPI), up to 50% of their net worth ^[7]. This route sits outside the individual LRS limit. While unlisted Indian entities face restrictions on OPI through other routes, they may invest in units of a fund set up in an IFSC ^[7][8], which can be an alternative avenue for unlisted businesses.

As these funds invest through a foreign-currency structure, rupee returns depend on the underlying investments and on the rupee's movement against the fund's currency. A weaker rupee adds to rupee returns; a stronger rupee reduces them. These currency movements therefore can potentially provide an additional source of return, over and above the performance of the underlying investments.

How GIFT City investments are taxed

Tax treatment for a resident investor depends on how the scheme is structured and taxed. Where a scheme pays tax itself, the highest effective rates, including surcharge and cess, are at 42.74% on short-term capital gains and 14.95% on long-term capital gains ^[9][10].

Tax collected at source (TCS) is levied upfront on remittances above ₹10 lakh in a financial year, at 20% for purposes other than education and medical treatment ^[11]. Credit for it can be claimed when filing the income tax return ^[12].

What does this mean in practice

GIFT City funds offer a route to global markets while being established and regulated within India, unlike funds set up outside the country ^[6]. The two main scheme types differ in who can invest and how much:

Retail schemes can be offered to all investors. The regulations set no general minimum per investor for Outbound Funds ^[6].
Restricted schemes, categorized as alternative investment funds (AIFs) of Category I, II or III, are offered privately to accredited investors or to investors investing at least US$150,000 ^[6].

The LRS limit applies per individual per financial year (April to March), including minors, and covers current and capital account transactions together. A fund investment therefore uses the same headroom as overseas education or travel ^[4].

Who such funds may suit

GIFT City funds may be more relevant for investors with a long horizon, investing towards overseas financial goals such as overseas education or a wish for global diversification

Conclusion

GIFT City combines an Indian location with an offshore legal status. A fund's suitability depends on factors such as currency exposure, costs, tax treatment and regulatory framework, rather than its location alone.

Sources

1. International Financial Services Centres Authority, IFSCA Overview. Available at: IFSCA Overview. 2. Reserve Bank of India, Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, Notification No. FEMA 339/2015-RB (2 March 2015), Regulations 3 and 4. Available at: RBI Notification. 3. Reserve Bank of India, Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme, A.P. (DIR Series) Circular No. 06 (22 June 2023). Available at: RBI Circular. 4. Reserve Bank of India, Master Direction on Liberalised Remittance Scheme. Available at: Master Direction on LRS. 5. Government of India, The International Financial Services Centres Authority Act, 2019, section 13 and Second Schedule. Available at: IFSCA Act, 2019. 6. International Financial Services Centres Authority, IFSCA (Fund Management) Regulations, 2025, Notification No. IFSCA/GN/2025/002 (10 February 2025), as amended up to 10 September 2026. Available at: IFSCA Fund Management Regulations, 2025. 7. Ministry of Finance, Foreign Exchange Management (Overseas Investment) Rules, 2022, G.S.R. 646(E) (22 August 2022), Rule 12, Schedule II para 1 and Schedule V para 1(2)(iii). Available at: Overseas Investment Rules, 2022. 8. Reserve Bank of India, Foreign Exchange Management (Overseas Investment) Directions, 2022, paras 1(ix) and 24(1). Available at: Overseas Investment Directions, 2022. 9. Income Tax Department, Income-tax Act, 2025, section 197 (tax on long-term capital gains). Available at: Section 197. 10. Income Tax Department, Income-tax rates for AOP/BOI/AJP (surcharge slabs and health and education cess). Available at: Income-tax Rates for AOP/BOI/AJP. 11. Income Tax Department, Income-tax Act, 2025, section 394. Available at: Section 394. 12. Income Tax Department, Tax Collection at Source (TCS) guide (version dated 19 January 2026). Available at: Tax Collection at Source (TCS) Guide. 13. Internal Revenue Service (US), Some nonresidents with U.S. assets must file estate tax returns. Available at: IRS Estate Tax Guidance.

Disclaimer

This document is for informational purposes only and does not constitute investment advice or constitute an offer or solicitation to sell or buy any securities. This document is for intended recipients only. The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. There is no assurance that any investment strategy or Scheme will achieve its objectives or avoid losses. Certain statements in this document may contain forward-looking information, including projections, estimates, and other statements regarding future events or the future financial performance of the Scheme. These statements are based on current expectations and assumptions, and actual results may differ materially due to various risks and uncertainties. The value of investments may fluctuate and there is no assurance or guarantee that the investment objectives of the Scheme will be achieved. Past performance does not guarantee or indicate future results/returns. Neither the Fund Management Entity, Trustees or its affiliates nor any person connected with them shall accept any liability arising from the use of this document.

The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.