GIFT City: Incentivising NRIs to plug into India’s growth

GIFT City offers several investment avenues and tax advantages to NRI investors

India’s first International Financial Services Centre (IFSC), GIFT City (Gujarat International Finance Tec-City)  is emerging as an important destination for non-resident Indians (NRIs) to plug into their homeland’s growth story.

With the Indian diaspora estimated at over 35.4 million, remittances and investments from NRIs are vital to the country’s financial ecosystem. GIFT City, with its favourable regulations and competitive taxation structure, policy framework, and global standards, aims to act as a bridge connecting offshore wealth with onshore opportunities.

Investment avenues for NRIs

NRIs are allowed to invest in a wide array of options within the GIFT City ecosystem:

Banking and deposits: offshore banking units (OBUs) allow NRIs to open foreign currency accounts within Indian jurisdiction, offering safety, ease of fund repatriation, and better yields.

International equities and bonds: GIFT City provides access to global stocks and debt instruments via IFSC exchanges like India INX and NSE IFSC, facilitating portfolio diversification.

Alternative investment funds (AIFs): over 140 AIFs operate within GIFT City (as of Sep 2024), including top players like HDFC, Mirae, and Kotak. These funds are becoming increasingly popular among NRIs for their exposure to private equity, real estate, and structured debt.

REITs and INVITs: NRIs can invest in real estate investment trusts and infrastructure investment trusts listed on IFSC exchanges without the hassle of directly managing property.

Insurance: ULIPs (unit-linked insurance plans) and endowment plans issued from GIFT City are exempt from capital gains tax — the only condition is that the premium for any year should not exceed 10 percent of the sum assured.

Also read: GIFT City to real estate: 5 ways NRIs can invest in India to maximise returns

Investments: before vs after GIFT City

Scenario 1: pre GIFT City

Imagine Rohan, an NRI based in the UAE, in 2015. He wants to invest Rs 1.3 crore in India. His options are limited:

- Mutual funds under NRE/NRO rules, with multiple FEMA and RBI compliance layers.
- Real estate, which had low liquidity and involved tedious paperwork.
- High taxation: interest and capital gains were taxable per DTAA (double taxation avoidance agreement) rules, with limited repatriation flexibility.

Scenario 2: post GIFT City

Fast forward to 2025. Rohan now channels the same Rs 1.3 crore into a Dollar-denominated AIF set up in GIFT City:

- He faces no restriction on ownership.
- Earns returns in USD—no INR conversion risk.
- Pays 0 percent capital gains tax on IFSC-listed securities.
- No GST is levied on management fees or fund administration.

Also read: What NRIs need to know about Indian income tax rules

Tax benefits

NRIs enjoy a host of tax incentives when investing through GIFT City:

- Capital gains tax: exempt for many IFSC securities.
- Interest income: bonds listed before July 1, 2023, are taxed at just 4 percent; 9 percent thereafter.
- Dividend income: taxed at a flat 10 percent, lower than typical rates in India.
- No GST: financial services within GIFT City are zero-rated, further reducing costs.
- No withholding tax: on derivative transactions or offshore investments.

The way forward

The future looks bright for GIFT City and NRI investors.

More liberalised remittance schemes are expected to ease fund transfers between resident and non-resident accounts, while dual listing (in India and abroad) of global stocks will offer more investment variety. Dedicated NRI portals and digital on-boarding will simplify KYC (know your customer) and compliance requirements. The introduction of sovereign green bonds, ESG-focused AIFs, and digital asset regulation under the IFSC Authority will also expand horizons.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.