Government Announces New Tax Sops to Attract Foreign Funds to GIFT City

The Indian government has introduced new measures in the Budget for FY26 to encourage the relocation of offshore funds, exchange-traded funds (ETFs), and retail schemes to the International Financial Services Centre (IFSC) at GIFT City, Gandhinagar. Finance Minister Nirmala Sitharaman announced these provisions, which will take effect from April 1, 2026, and apply to the assessment year 2026-27 and beyond.

Under the existing relocation framework, offshore funds moving to GIFT City enjoy tax exemptions. The latest amendments expand this benefit to ETFs and retail investment schemes transferring from offshore locations such as Singapore and Mauritius. ETFs are funds that track stock market indices like the Sensex or Nifty. The government expects this change to facilitate the movement of global investment funds into GIFT City, strengthening its position as a financial center.

Non-resident investors (NRIs) using GIFT City have also been given additional tax relief. Currently, NRIs investing in Indian markets through derivative trades or participatory notes are exempt from taxation. The government has now extended this benefit to NRIs investing through Foreign Portfolio Investors (FPIs) registered in GIFT City. This expansion is expected to increase NRI participation in India’s financial markets by making investments more attractive.

The budget documents outline proposed amendments to Section 10(4E) of the Income Tax Act to further incentivize financial activities at IFSC. According to the changes, income earned by non-residents from the transfer of non-deliverable forward contracts, offshore derivative instruments, or over-the-counter derivatives through FPIs based in GIFT City will not be included in total taxable income. This exemption applies under specific conditions that will be defined through government regulations.

In addition to tax exemptions, the government has proposed adjustments to safe harbor rules that govern the relocation of investment funds to India. Under the revised provisions, the calculation of resident participation in a fund will now be determined as of April 1 or October 1 of the financial year. These modifications aim to simplify compliance for foreign funds looking to move operations to GIFT City.

The government has been taking multiple steps to establish GIFT City as a leading financial hub. Over the years, policies have been introduced to make it a favorable destination for international businesses, banks, and investors. By reducing tax liabilities and easing regulatory processes, the government seeks to make the region more competitive with financial centers in Dubai and Singapore.

Several global financial firms have already set up operations in GIFT City, and the new incentives could further increase participation. The extension of benefits to ETFs and retail schemes is particularly significant, as it broadens the scope of investment vehicles that can migrate to India. This move is expected to attract a wider range of asset managers and institutional investors.

Market analysts believe that these changes will provide a boost to India’s financial ecosystem by increasing trading volumes and liquidity in domestic markets. The decision to include ETFs and other investment vehicles in the relocation framework aligns with global trends, where countries offer tax incentives to attract financial institutions.

GIFT City has been positioned as a key part of India’s long-term financial strategy, with dedicated regulatory frameworks and infrastructure tailored to international business requirements. The government has been actively engaging with industry stakeholders to refine policies that make the region an attractive alternative for offshore investments.

The budget measures reflect an ongoing effort to strengthen India’s financial sector and integrate it with global markets. The amendments to tax laws, safe harbor rules, and fund relocation policies indicate a structured approach toward making GIFT City a preferred destination for international financial activities.