GIFT (Gujarat International Finance Tec-City) is India's first operational smart city and hosts India's
first and only International Financial Services Centre (IFSC). It is a hub for financial and IT
companies from around the world, offering an ideal ecosystem for both local and international
businesses. The IFSC at GIFT City enables onshore and offshore financial services and its mission is to
offer cross-border financial products and services within a competitive tax environment.
International Financial Services Centre (IFSC) at GIFT City
The International Financial Services Centre within the GIFT City (GIFT IFSC) serves as a crucial hub
catering to the evolving needs of customers beyond the confines of a domestic economy. The GIFT IFSC is
a regulated region duly supervised by a unified regulator, being the International Financial Services
Authority (IFSCA). In the Indian context, the GIFT IFSC can be defined as a jurisdiction offering robust
market for financial products and financial services to both non-residents and residents, permit
transactions in currencies other than the Indian Rupee (INR).
Key Features
The GIFT IFSC plays a pivotal role in advancing India's objectives of self-reliance in
international financial services by facilitating the issuance of overseas bonds, attracting
international capital, and fostering trading activities in INR-USD derivatives.
This multifaceted approach positions the GIFT IFSC as India's gateway to global financial
markets, facilitating outbound and inbound investments, and hosting a myriad of other financial
activities. Through its strategic location and forward-looking policies, the GIFT IFSC
reinforces India's presence and influence on the international financial stage, offering a
conduit for businesses and investors to connect with the global economy.
In essence, IFSCA represents India's commitment to fostering a robust and efficient financial
ecosystem within GIFT IFSC, thereby attracting international businesses and investors. Through
its efforts, IFSCA seeks to unlock the full potential of GIFT IFSC, making it a significant
player in the global financial landscape.
Taxation and Regulatory Framework
GIFT IFSC stands out as a beacon of tax-friendly policies among global International Financial Services
Centres. Its commitment to providing an advantageous taxation framework demonstrates its dedication to
facilitating success for both individuals and organizations.
Benefits
Transaction-related Exemptions: Transactions executed on GIFT IFSC exchanges are exempt from
Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and stamp duty, further
enhancing the attractiveness of the centre.
Interest Income Exemption: Interest income paid to non-residents on money lent to GIFT IFSC
units is not subject to taxation, making it a highly appealing prospect for investors.
Capital Gains Tax Exemptions: Transfers of specified securities listed on GIFT IFSC exchanges by
non-residents are exempt from capital gains tax.
Exemption from Indian Exchange Control Regulations: Units within GIFT IFSC are exempt from
Indian exchange control regulations, thereby simplifying financial transactions.
Open Market Investment: Indian residents are permitted to contribute to investment vehicles in
GIFT IFSC as Other Persons resident in India, thereby allowing them to establish and sponsor
contributions towards funds in GIFT IFSC.
Funds in GIFT IFSC
Based on the comprehensive report submitted in January 2022 by the Expert Committee on Investment Funds,
draft regulations were issued by IFSCA for public comments. On April 2022, the IFSCA issued IFSCA (Fund
Management) Regulations, 2022.
Key attributes of Funds Management Entities (FME)
Categories of FME
1. Authorised FME
Types of schemes managed: Venture Capital Schemes offered on a private placement basis
Pooling of money from accredited investors or investors investing above USD 250,000
Invest in start-up or early-stage ventures through Venture Capital Scheme
Family Investment Funds
Minimum net worth: USD 75,000
2. Registered FME (Non-Retail)
Types of schemes managed: Venture Capital Schemes and Restricted Schemes offered on a
private placement basis
Pooling of money from accredited investors or capital commitment above USD 75,000
Portfolio Management services, Multi Family Offices, Investment Manager for private
placement of REITs and InvITs
Minimum net worth: USD 500,000
Allowed to undertake all activities of Authorised FMEs
3. Registered FME (Retail)
Types of schemes managed: All schemes including Retail Schemes offered to all investors
including retail investors
Pooling of money from all investors or including retail investors
Public offer of Investment Trusts (REITs and InvITs), Launch of ETFs
Minimum net worth: USD 1,000,000
Allowed to undertake all activities of Authorised FMEs and Registered FME (Non-retail)
Scheme Types
1. Venture Capital Scheme
Launched by FMEs - schemes that invest primarily in start-ups, early-stage VC
undertakings involved in new products, services, technology etc. Also includes an Angel
Fund
Offered only on a private placement basis (including accredited investors) and shall
have less than 50 investors
'Green channel' for subscription by investors
2. Restricted Scheme
Offered only to relevant persons on a private placement basis (including accredited
investors) and shall have less than 1,000 investors
'Green channel' if subscription is to be raised only from accredited investors
Launched by Registered FME
3. Retail Scheme
A minimum of 20 investors, ensuring that no single investor contributes more than 25% of
the total capital. There are no restrictions on the maximum capital limit.
Schemes offered to all investors including retail investors
Schemes can be:
Filed with regulator only after approval from fiduciaries
Launched only after incorporating all comments from regulator in the offer
document
Launched by Registered FME (Retail)
Note: *Soon, under retail schemes, FMEs are set to launch offerings aimed at attracting
foreign retail investors. This follows clarifications provided in the July 2024 Finance Budget.
Taxation Framework
Under the new Fund Management regulations: Venture Capital Scheme shall be construed as Category I AIF
under Income tax Act, 1961 and Restricted Scheme (Retail and Non-Retail) shall be construed either as
Category I/ II / III AIF (as the case may be)
Category I and II AIFS:
Tax pass through status for AIFs (except for business income)
Investors taxed as if investments directly made by them
Investors can claim losses (subject to condition - holding units for 12 months)
To the extent beneficial, NR investors can avail benefit under the Tax Treaty
Income from offshore investments earned by offshore investors through AIF, not taxable
in India
PAN and Income-tax return filing exemption for NR investors, subject to conditions
Category III AIFS:
Tax paid at Fund level – FPI tax principles to apply
Exemption# from tax on income from:
transfer of securities (excl. shares of Indian company) including debt,
derivatives, offshore securities, etc.
securities issued by non-resident (not being a PE) with no accrual of income in
India
securitization trust chargeable under the head 'PGBP'
Income on transfer of shares in an Indian company is taxable# at:
STCG - 20% if STT paid, else 30%
LTCG - 12.5%
Income in respect of securities (such as interest, dividend) is taxable# at 10%
Investors exempt from tax on any income received from the Category III AIF or on
transfer of its units
PAN and Income-tax return filing exemption, subject to conditions
