GIFT City IFSC: Fund Setup, Tax Benefits, FEMA Exemptions & Compliance

Featured Answer: Gujarat International Finance Tec-City (GIFT City) in Gandhinagar houses India’s first International Financial Services Centre (IFSC), regulated by the International Financial Services Centres Authority (IFSCA). Entities operating from GIFT IFSC enjoy 100% income tax deduction for 10 out of 15 years under Section 80LA, zero GST on financial services, exemption from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and stamp duty, along with substantial FEMA relaxations that permit operations in foreign currency without standard RBI remittance restrictions.

India’s ambition to become a global financial hub crystallised with the establishment of the International Financial Services Centre at GIFT City. Since the enactment of the IFSCA Act, 2019, the regulatory landscape has matured rapidly, attracting fund managers, banking units, insurance companies, aircraft lessors, and FinTech firms from across the world. This comprehensive guide covers every facet of setting up and operating in GIFT IFSC — from regulatory registration to tax incentives, FEMA exemptions, and emerging verticals such as aircraft leasing and bullion exchange.

For cross-border structuring and FEMA advisory, visit our FEMA compliance services page.

1. Understanding GIFT City & the IFSC Framework

Definition: An International Financial Services Centre (IFSC) is a jurisdiction that provides financial services to non-residents and residents in a currency other than the domestic currency (i.e., in foreign currency). GIFT IFSC, located in Gandhinagar, Gujarat, is India’s sole operational IFSC and is governed by the unified regulator — the International Financial Services Centres Authority (IFSCA).

1.1 The IFSCA Act, 2019

The IFSCA Act, 2019 was enacted to establish a unified regulatory authority for all financial services within the IFSC. Before this Act, entities in GIFT IFSC were regulated by multiple domestic regulators — SEBI for securities, RBI for banking, IRDAI for insurance, and PFRDA for pensions. The IFSCA consolidated these functions into a single body, dramatically simplifying the compliance environment.

Key features of the IFSCA framework include:

Unified regulation: A single regulator for capital markets, banking, insurance, and pension activities within the IFSC
Global benchmarking: Regulations are drafted with reference to international best practices from jurisdictions such as Singapore, Dubai (DIFC), and London
Ease of operations: Simplified approval processes with defined timelines for entity registration
Regulatory sandbox: A framework for testing innovative FinTech solutions under controlled conditions

1.2 Why GIFT IFSC Matters for Indian Businesses

For Indian corporates, family offices, and fund managers, GIFT IFSC offers a unique proposition: access to an international financial centre within India’s sovereign territory. This eliminates the need to set up operations in offshore jurisdictions such as Mauritius, Singapore, or the Cayman Islands, while still enjoying comparable tax efficiency and regulatory flexibility. The rupee cost of operations is substantially lower, and there is no jurisdictional risk associated with foreign regulatory changes.

2. Fund Management Entity (FME) Registration

2.1 Categories of FME

The IFSCA (Fund Management) Regulations, 2022, classify Fund Management Entities into three categories:

Authorised FME: Can manage all types of funds including retail schemes. Requires a minimum net worth of USD 500,000 and at least one principal officer with 5 years of experience in fund management
Registered FME — Non-Retail: Can manage funds offered to accredited or institutional investors only. Minimum net worth of USD 75,000
Registered FME — Retail: Can manage Exchange Traded Funds (ETFs) and certain retail-oriented schemes. Minimum net worth of USD 200,000

2.2 Application Process

The FME registration process involves the following steps:

Pre-application: Determine the appropriate FME category, prepare incorporation documents for a company or LLP in GIFT IFSC, and arrange the required net worth
Filing with IFSCA: Submit the application through the IFSCA online portal with requisite documents including business plan, compliance manual, fit-and-proper declarations, and details of key managerial personnel
Processing: IFSCA typically processes applications within 30 working days, subject to completeness of documentation
Grant of certificate: Upon approval, IFSCA issues the FME registration certificate, following which the entity can launch schemes

2.3 Ongoing Compliance for FMEs

Once registered, FMEs must comply with periodic reporting requirements including quarterly compliance certificates, annual audited financial statements, half-yearly reports on assets under management, and adherence to investment restrictions and concentration norms prescribed by IFSCA.

3. Alternative Investment Funds (AIFs) in IFSC

3.1 AIF Categories Under IFSCA

Alternative Investment Funds established in GIFT IFSC mirror the three-category framework familiar from SEBI regulations, but with notable differences in flexibility:

Category I AIFs include venture capital funds, social impact funds, SME funds, and infrastructure funds. These funds invest in startups, early-stage ventures, and sectors that the government considers socially or economically desirable. In GIFT IFSC, Category I AIFs can invest in global opportunities without being restricted to Indian markets alone.

Category II AIFs include private equity funds, debt funds, and fund-of-funds that do not fall under Category I or III. These are the most popular structures in GIFT IFSC, with significant allocations flowing into Indian and international real estate, private credit, and growth equity.

Category III AIFs include hedge funds and funds that employ diverse or complex trading strategies, including leverage through investment in listed or unlisted derivatives. GIFT IFSC offers Category III AIFs the ability to use leverage and short-selling techniques that are more restricted under onshore SEBI regulations.

3.2 Scheme Launch & Investor Eligibility

Schemes launched by an FME in GIFT IFSC can accept investments from accredited investors (minimum net worth of USD 150,000 or annual income of USD 40,000), institutional investors, and, in the case of Authorised FMEs, retail investors as well. The minimum investment threshold for non-retail schemes is typically USD 150,000, significantly lower than the ₹1 crore minimum under SEBI’s domestic AIF regulations.

3.3 Advantages Over Offshore Fund Structures

Historically, Indian fund managers seeking to manage global capital would set up fund vehicles in Mauritius, Singapore, or the Cayman Islands. GIFT IFSC offers a compelling onshore-offshore alternative:

No requirement to navigate foreign company law and corporate governance frameworks
Lower setup and operating costs (office space in GIFT City is substantially cheaper than Singapore or London)
Access to India’s talent pool for fund operations and compliance
Treaty benefits and tax certainty under Indian law
Ability to manage both India-focused and global investment strategies from a single location

4. Banking Unit (IBU) Setup in GIFT IFSC

4.1 What is an IFSC Banking Unit?

An IFSC Banking Unit (IBU) is a branch of an Indian or foreign bank established within GIFT IFSC. IBUs operate exclusively in foreign currency and are regulated by IFSCA (having transitioned from RBI oversight). As of 2025, over 25 banks — including SBI, HDFC Bank, ICICI Bank, Barclays, and Deutsche Bank — have established IBUs in GIFT City.

4.2 Permitted Activities

IBUs can undertake a wide range of banking and financial activities:

Accepting deposits from non-residents and residents (in foreign currency)
Lending in foreign currency to both Indian and overseas borrowers
Trade finance, including letters of credit and bank guarantees
Treasury operations, forex dealing, and derivatives
Factoring and forfaiting services
Acting as custodians for securities held in IFSC

4.3 Regulatory Requirements

IBUs must maintain a minimum capital of USD 20 million, comply with Basel III norms as adapted by IFSCA, submit periodic prudential returns, and undergo annual statutory audits. The regulatory framework for IBUs is broadly aligned with global banking standards, making it familiar for international banks.

5. Tax Benefits in GIFT IFSC

Featured Answer: The tax incentives available in GIFT IFSC are among the most generous offered by any international financial centre globally. The combination of income tax holidays, zero GST, and exemption from transaction taxes creates a highly competitive operating environment for fund managers, banks, and other financial service providers.

5.1 Section 80LA — 100% Income Tax Deduction

Under Section 80LA of the Income Tax Act, 1961, units operating in GIFT IFSC are entitled to a 100% deduction of income arising from IFSC operations for any 10 consecutive assessment years out of a block of 15 years from the year in which the unit obtains the necessary permissions. This effectively means zero income tax on profits for a decade.

Key points regarding Section 80LA:

The deduction applies to income derived from providing financial services in the IFSC
The unit must be set up in the IFSC and must derive income solely from IFSC operations to claim the full deduction
The 10-year window provides flexibility — units can choose the most profitable years within the 15-year block
For IFSC Banking Units, the deduction applies to income from transactions with non-residents and other IFSC units

5.2 Exemption from GST

Services provided within and from GIFT IFSC enjoy exemption from Goods and Services Tax (GST). This includes financial services such as fund management, custodial services, clearing and settlement, and brokerage. The GST exemption significantly reduces the operating cost burden for service providers and makes GIFT IFSC competitive with zero-tax jurisdictions like Dubai and the Cayman Islands.

5.3 No Securities Transaction Tax (STT)

Transactions in securities undertaken on recognised stock exchanges within the IFSC are exempt from Securities Transaction Tax. This is a major advantage for Category III AIFs and proprietary trading desks operating from GIFT City, as STT can represent a significant cost for high-frequency or high-volume trading strategies on domestic exchanges.

5.4 No Commodities Transaction Tax (CTT)

Similarly, commodities derivatives traded on IFSC exchanges are exempt from Commodities Transaction Tax, levelling the playing field with international commodity trading hubs.

5.5 Stamp Duty Exemption

Instruments executed in the IFSC relating to transfer of securities, creation of security interests, and other financial transactions enjoy exemption from stamp duty under the Indian Stamp Act, 1899, as amended. This eliminates another layer of transaction costs.

5.6 Capital Gains Tax Benefits

Non-resident investors in funds set up in GIFT IFSC benefit from favourable capital gains treatment. Gains arising to non-residents from transfer of certain specified securities (including derivatives) on IFSC exchanges are exempt from capital gains tax. Additionally, the withholding tax on interest income earned by non-residents from bonds listed on IFSC exchanges is reduced to 4% under Section 194LC.

6. FEMA Relaxations & Foreign Exchange Framework

6.1 GIFT IFSC as a Foreign Currency Zone

One of the most distinctive features of GIFT IFSC is that it operates as a foreign currency zone. All transactions within the IFSC are denominated in foreign currencies (primarily USD), and the zone is treated as being outside India for the purposes of foreign exchange regulations. This creates a fundamentally different regulatory environment compared to onshore India.

6.2 FEMA Exemptions

The Reserve Bank of India, in consultation with the Government of India, has granted significant FEMA exemptions for GIFT IFSC:

Liberalised Remittance Scheme (LRS) not applicable: Indian residents investing in IFSC-based funds or accounts are not subject to the USD 250,000 annual LRS limit. Instead, separate provisions govern resident participation in IFSC
Direct investment route: Foreign investors can invest directly into IFSC entities without routing through the standard FDI framework. The sectoral caps, approval routes, and pricing guidelines applicable under FEMA 20(R) are significantly relaxed
No requirement for AD bank intermediation: Transactions within the IFSC between IFSC units do not require routing through Authorised Dealer banks
Relaxed ECB norms: IFSC Banking Units can lend to Indian corporates under a more liberalised framework compared to standard External Commercial Borrowing (ECB) regulations
Simplified repatriation: Profits and capital can be repatriated freely from the IFSC without the approvals typically required under FEMA

For detailed guidance on FEMA compliance, consult our FEMA advisory practice.

6.3 Indian Residents & GIFT IFSC

Indian residents can participate in the GIFT IFSC ecosystem in several ways:

Opening foreign currency accounts with IBUs (subject to conditions)
Investing in schemes of AIFs set up in the IFSC (subject to minimum investment thresholds and remittance procedures)
Purchasing insurance products from IFSC insurance offices
Trading on IFSC stock and commodity exchanges through registered brokers

The Government of India has progressively liberalised the framework to encourage Indian resident participation, recognising that the success of GIFT IFSC depends on attracting both international and domestic capital.

7. Family Office Structures in GIFT IFSC

7.1 Why Family Offices are Moving to GIFT City

Ultra-high-net-worth families in India are increasingly exploring GIFT IFSC as a base for their family office operations. The drivers include:

Tax efficiency: Income from IFSC operations qualifies for Section 80LA deductions, and there is no GST on services consumed within the IFSC
Global diversification: Family offices in GIFT IFSC can invest globally in equities, bonds, real estate, and alternative assets without the constraints of LRS or other domestic remittance limits
Succession planning: Structures within the IFSC can be designed to facilitate intergenerational wealth transfer with greater flexibility than purely domestic structures
Confidentiality: While subject to regulatory oversight by IFSCA, IFSC structures offer a degree of commercial privacy comparable to international financial centres

7.2 Structuring Options

Family offices in GIFT IFSC can be structured as:

Registered FME (Non-Retail): A family can set up a non-retail FME to manage its proprietary capital through one or more AIF schemes. The minimum net worth requirement of USD 75,000 is modest
Family Investment Fund (FIF): IFSCA has introduced the concept of Family Investment Funds, a dedicated structure for single-family offices with simplified compliance requirements
Private company or LLP: For families that do not wish to operate under the FME framework, a private company or LLP in GIFT IFSC can undertake investment activities, though without the benefit of the fund management regulatory passport

Expert Tip — CA V. Viswanathan: Family offices considering GIFT IFSC should evaluate the total cost of compliance — not just tax savings. While the tax benefits are substantial, the ongoing compliance obligations (IFSCA filings, annual audit, AML/KYC requirements) require dedicated resources. For families with investable assets exceeding USD 5 million and a genuine need for global diversification, the GIFT IFSC structure typically delivers a strong return on the compliance investment. For startup founders looking at family wealth structuring, explore our startup advisory services.

8. Aircraft Leasing in GIFT IFSC

8.1 The Opportunity

India is one of the fastest-growing aviation markets in the world, yet historically, Indian airlines leased aircraft through entities domiciled in Ireland, the Cayman Islands, or other offshore centres. GIFT IFSC has been positioned as an alternative leasing hub, with IFSCA issuing dedicated regulations for aircraft operating and finance leases.

8.2 Regulatory Framework

The IFSCA (Finance Company) Regulations and the IFSCA (Aircraft Leasing) Directions provide the framework. Key features include:

Finance companies registered in GIFT IFSC can undertake aircraft leasing activities
Beneficial tax treatment — no customs duty on import of aircraft for leasing, Section 80LA income tax deduction, and no GST
India has signed the Cape Town Convention and its Aircraft Protocol, providing international legal certainty for aircraft lessors operating from GIFT IFSC
Aircraft can be registered in India and leased to domestic and international airlines

8.3 Progress So Far

Several major leasing companies, including GIFT AviLease and entities backed by domestic financial institutions, have commenced operations from GIFT City. The Government of India has set a target of making GIFT IFSC a top-5 global aircraft leasing hub by 2030.

9. Ship Leasing & Maritime Services

Building on the aircraft leasing framework, IFSCA has also introduced regulations for ship leasing and financing. India’s maritime trade accounts for over 90% of its international goods trade by volume, and the establishment of a ship leasing and financing hub within GIFT IFSC aims to capture a portion of the global maritime finance market currently dominated by London, Hamburg, and Singapore.

Ship leasing entities in GIFT IFSC benefit from the same tax and FEMA advantages available to other IFSC units. Additionally, the regulatory framework permits both operating leases and finance leases of vessels, with provisions for ship registration under the Indian flag.

10. Bullion Exchange & International Commodity Trading

10.1 India International Bullion Exchange (IIBX)

The India International Bullion Exchange (IIBX), launched in 2022 at GIFT City, is India’s first international bullion exchange. It enables qualified jewellers and bullion dealers to import gold and silver directly through the exchange mechanism, bypassing traditional import channels.

10.2 Benefits of IIBX

Transparent price discovery benchmarked to international standards
Reduced dependence on the London Bullion Market Association (LBMA) pricing
Quality assurance — only LBMA-accredited good delivery bars are traded
Integration with India’s commodity derivatives market through the IFSC exchange platform
No CTT on bullion derivatives traded on the IFSC exchange

11. FinTech Regulatory Sandbox

11.1 IFSCA FinTech Entity Framework

IFSCA has established a FinTech Entity Framework that provides a regulatory sandbox for testing innovative financial products and services. The sandbox allows FinTech companies to operate under relaxed regulatory conditions for a defined period, enabling them to test their solutions with real customers before seeking full authorisation.

11.2 Incentives for FinTech Companies

Grant-in-aid: The Gujarat Government and IFSCA offer financial incentives to FinTech companies setting up in GIFT City, including capital subsidies and operating expense grants
Innovation hub: IFSCA’s Innovation Sandbox provides access to regulatory mentorship, market data, and testing infrastructure
Regulatory flexibility: FinTech entities can experiment with blockchain-based solutions, digital lending platforms, insurtech products, and payment innovations under the sandbox framework
Tax benefits: FinTech entities registered in GIFT IFSC enjoy the same Section 80LA and GST benefits as other IFSC units

For FinTech startups exploring GIFT City, our startup advisory team can assist with entity structuring and regulatory applications.

12. Compliance Framework & Ongoing Obligations

12.1 Anti-Money Laundering (AML) & Know Your Customer (KYC)

All entities operating in GIFT IFSC must comply with the IFSCA (Anti-Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines. These are aligned with the Financial Action Task Force (FATF) standards and require entities to implement robust customer due diligence, transaction monitoring, and suspicious transaction reporting procedures.

12.2 Annual Compliance Calendar

IFSC units must adhere to the following annual compliance obligations:

Annual audited financial statements: To be filed with IFSCA within the prescribed timeline
Net worth compliance: Continuous maintenance of minimum net worth as per the applicable category
Compliance officer certification: Quarterly and annual compliance certificates
Income tax returns: Even though income may be exempt under Section 80LA, the unit must file returns claiming the deduction
FEMA reporting: Applicable reporting under FEMA (even with relaxations, certain reporting obligations remain)
AML/KYC audits: Periodic internal and external audits of AML/KYC compliance

12.3 Penalties & Enforcement

IFSCA has enforcement powers comparable to SEBI and RBI. Non-compliance with regulations can result in monetary penalties, suspension or cancellation of registration, and directions for disgorgement of profits. The enforcement framework is designed to maintain the credibility and integrity of the IFSC ecosystem.

13. Comparison: GIFT IFSC vs. Offshore Jurisdictions

The following comparison highlights why GIFT IFSC is emerging as a preferred alternative to traditional offshore centres:

Cost of operations: GIFT City operating costs are estimated at 30–40% lower than Singapore and 50–60% lower than London or Dublin
Tax efficiency: The 10-year tax holiday under Section 80LA, combined with zero GST and zero transaction taxes, is comparable to or better than the tax regime in Mauritius, the Cayman Islands, or the Channel Islands
Regulatory certainty: IFSCA provides a single-window regulatory framework, reducing the complexity of dealing with multiple regulators
India access: GIFT IFSC entities enjoy preferential access to the Indian market, with relaxed FEMA and FDI norms for investments into India
Talent availability: Proximity to India’s deep talent pool of chartered accountants, company secretaries, lawyers, and financial analysts
Time zone advantage: GIFT City’s IST time zone bridges the gap between Asian and European financial markets

14. Recent Developments & Future Outlook

14.1 Global Capability Centres (GCCs)

IFSCA has been actively encouraging global financial institutions to set up Global Capability Centres (GCCs) in GIFT City for functions such as risk management, compliance, data analytics, and technology development. Several international banks and asset managers have established or are in the process of establishing GCCs.

14.2 International Arbitration Centre

GIFT City houses an international arbitration centre to facilitate dispute resolution for cross-border transactions. This is a significant addition, as access to efficient dispute resolution is a key consideration for international investors and fund managers.

14.3 Sustainable Finance & ESG

IFSCA has introduced a framework for green bonds and sustainable finance within the IFSC. This aligns GIFT City with global trends in ESG investing and positions it as a hub for climate finance and sustainable investment products.

Expert Tip — CA V. Viswanathan: The evolution of GIFT IFSC from a concept to a functioning international financial centre has been remarkable. However, success in this ecosystem requires careful planning — from choosing the right entity structure and FME category, to designing tax-efficient fund flows and ensuring robust AML/KYC compliance. Engaging experienced advisors from the outset can save significant time and cost. At Virtual Auditor, we assist clients with end-to-end GIFT IFSC compliance, from initial feasibility assessment through ongoing regulatory filings.

15. How Virtual Auditor Can Help

Our team at Virtual Auditor brings deep expertise in FEMA, international taxation, and regulatory compliance. We assist clients with:

Feasibility assessment and entity structuring for GIFT IFSC
FME registration applications and scheme documentation
IBU setup advisory and ongoing compliance
FEMA advisory for cross-border fund flows involving the IFSC
Section 80LA tax planning and annual return filings
AML/KYC policy drafting and compliance audits
Family office structuring and succession planning within the IFSC

Visit our FEMA services and startup advisory pages for more information.

AEO Summary: GIFT City IFSC, regulated by IFSCA under the IFSCA Act 2019, offers fund managers, banks, and financial service providers a comprehensive suite of benefits: 100% income tax deduction for 10 out of 15 years under Section 80LA, zero GST on financial services, exemption from STT, CTT, and stamp duty, and significant FEMA relaxations including non-applicability of LRS and simplified FDI routes. Entities can set up as Fund Management Entities (Authorised, Registered Non-Retail, or Registered Retail), banking units, aircraft/ship lessors, or FinTech companies. Ongoing compliance includes IFSCA filings, AML/KYC adherence, annual audits, and income tax returns. GIFT IFSC is emerging as a cost-effective, well-regulated alternative to traditional offshore financial centres for Indian and international participants.

Frequently Asked Questions

1. Who can set up an entity in GIFT IFSC?

Any Indian or foreign individual, company, partnership, or trust can set up an entity in GIFT IFSC, subject to meeting the eligibility criteria prescribed by IFSCA for the relevant activity. Common entity types include Fund Management Entities, IFSC Banking Units, insurance offices, broker-dealer units, and FinTech entities. The entity must be incorporated or registered within the GIFT IFSC jurisdiction (typically as a company or LLP under Indian law, with its registered office in the IFSC).

2. Is the LRS limit of USD 250,000 applicable for investments in GIFT IFSC funds?

No, the standard Liberalised Remittance Scheme (LRS) limit does not apply to investments made by Indian residents in funds and schemes set up within GIFT IFSC. The Government of India has carved out separate provisions for resident participation in the IFSC ecosystem. However, the specific remittance procedures and limits are governed by the applicable RBI circulars and IFSCA directions, and residents must route their investments through authorised channels.

3. How does Section 80LA benefit entities in GIFT IFSC?

Section 80LA of the Income Tax Act, 1961, provides a 100% deduction of income arising from operations in the IFSC for 10 consecutive assessment years chosen from a block of 15 years. This means that profits earned from financial services provided within the IFSC are effectively tax-free for a decade. The entity must derive its income exclusively from IFSC operations to claim the full deduction. The flexibility to choose 10 out of 15 years allows entities to optimise their tax position based on profitability trends.

4. What AML/KYC obligations apply to IFSC entities?

All entities operating in GIFT IFSC must comply with the IFSCA Anti-Money Laundering, Counter-Terrorist Financing, and Know Your Customer Guidelines. These guidelines are aligned with FATF recommendations and require entities to implement customer due diligence measures, ongoing transaction monitoring, suspicious transaction reporting to the Financial Intelligence Unit (FIU-IND), record keeping for a minimum of 5 years, and periodic internal and external compliance audits. The principal officer or compliance officer of the entity is responsible for ensuring adherence.

5. Can a family office benefit from setting up in GIFT IFSC?

Yes, family offices with global investment aspirations can benefit significantly from GIFT IFSC. The IFSCA has introduced the Family Investment Fund (FIF) concept specifically for single-family offices, offering simplified compliance requirements. Additionally, families can set up Registered FME (Non-Retail) structures to manage proprietary capital through AIF schemes. The tax benefits (Section 80LA, no GST, no STT), FEMA relaxations (no LRS constraints, direct investment route), and lower operating costs make GIFT IFSC an attractive jurisdiction for wealth management and succession planning.