GIFT City has a genuinely generous tax regime, and it is routinely described in one careless phrase: a tax-free zone. It is not. It is a set of specific, conditional reliefs that attach to qualifying units, to non-resident investors and to defined activities. Read correctly, the regime is a map of conditions to satisfy, not a headline to quote. This guide sets out what each relief actually is, who can use it, and what it is subject to, because in tax the qualifier is the substance.
The shape of the regime
Three features run through every GIFT City tax benefit. The reliefs are activity-specific, so they attach to approved IFSC activities rather than to the postcode. Many of the investment exemptions are status-specific, available to non-residents and to specified IFSC funds rather than to everyone. And all of them are substance-dependent, because India's general anti-avoidance rule and the treaty principal-purpose test apply to an IFSC structure as they do to any other. None of this is a reason to discount GIFT City. It is the reason to structure it properly.
The 80LA business-income holiday
The headline corporate benefit sits in section 80LA of the Income-tax Act. An eligible IFSC unit may claim a 100% deduction of its specified income for any ten consecutive assessment years, at the unit's own option, within the first fifteen years beginning with the year in which it obtained its IFSCA permission or registration. Because the window is any ten years in fifteen, when to start the claim is a planning decision, not a default.
The deduction is conditional. The income must arise from approved IFSC activities, it must generally be received in convertible foreign exchange, and the claim requires an accountant's certificate and the relevant permission. In any year a unit does not claim the holiday, it does not fall back to the full domestic rate either: IFSC units are subject to minimum alternate tax or alternate minimum tax at a concessional 9% of book profit.
Capital gains and investment income: specific, not blanket
This is the area most often overstated. There is no blanket capital-gains exemption in GIFT City. Instead there are targeted exemptions, written mainly for non-residents and for specified IFSC funds, on defined instruments:
Two points decide whether the exemption is actually available. The first is status: a resident investor, or income that falls outside these provisions, is taxed under the ordinary rules. The second is timing, because several of the commencement sunsets that govern these benefits now run to 31 March 2030, having been extended from 2025. The exemption is real, but it is the instrument and the investor that qualify, not the location alone.
GST: concessional, not a no-GST regime
An IFSC unit sits in a Special Economic Zone, so the SEZ rules under the IGST Act apply, and they are concessional rather than blanket. The treatment depends on the direction of the supply and on authorised-operations status.
- Inbound, to the unit. Supplies of goods or services to an IFSC or SEZ unit for its authorised operations are zero-rated under section 16 of the IGST Act. The supplier can supply without IGST under a Letter of Undertaking or bond, or pay and claim a refund. Since October 2023 the relief is tied expressly to authorised operations, requires SEZ endorsement, and is aligned to the section 54 refund route with a sale-realisation condition.
- Outbound, into the domestic market. Supplies by an IFSC or SEZ unit into India's domestic tariff area are treated as imports, and attract IGST and customs duty on the domestic recipient. This is the leg most often misdescribed as tax-free.
- Fund management. Services provided by a fund manager in the IFSC to IFSC-based funds are exempt from GST.
- On-exchange. Transactions in specified securities on a recognised IFSC exchange are free of GST as well as securities transaction tax, commodities transaction tax and stamp duty, but that relief is exchange-specific, not a blanket exemption for every IFSC transaction.
Transaction taxes on IFSC exchanges
Trades in specified securities executed on a recognised IFSC stock exchange, in foreign currency, are generally free of securities transaction tax, commodities transaction tax and stamp duty. The relief attaches to qualifying on-exchange transactions; it should not be read as removing those taxes from every transaction an IFSC unit undertakes.
The condition behind all of it: substance
None of these reliefs is automatic. The 80LA deduction, the investment exemptions and any tax-treaty benefit on the India assets beneath the structure all assume a real, staffed, decision-making presence in GIFT City, income received in foreign exchange where required, and the approvals and certificates the provisions specify. India's general anti-avoidance rule, the principal-purpose test and the multilateral instrument apply, so a thinly-staffed unit can have benefits unwound. The reliefs are earned, and the office and the people are part of how they are earned.
Reading it correctly: where this goes wrong
- Resident versus non-resident. Several headline exemptions are written for non-residents and specified funds; a resident investor's position is different and must be analysed separately.
- Inbound versus outbound GST. Zero-rating applies to authorised-operations supplies into the unit; sales into the domestic market are imports.
- Instrument-specific gains relief. The capital-gains exemptions turn on the instrument and the investor, not on being in GIFT City.
- Timing the 80LA window, and the 2030 sunsets. Both the ten-year window and the commencement sunsets are planning variables, not assumptions.
- Last year's numbers. This regime changes most Budgets; positions should be confirmed against the current Finance Act.
How ATB Corporate helps
We model the GIFT City tax position for the specific structure rather than the brochure version: which income qualifies for 80LA and when to start the window, which investors and instruments fall within the non-resident exemptions, the GST treatment of each supply leg, and the substance and India-side position that keep all of it defensible. We then keep it current as the Finance Act and IFSCA circulars move.
Talk to ATB about your GIFT City tax position →
FAQ
Is there GST in GIFT City?
GST in GIFT City IFSC is concessional, not a blanket no-GST regime. Supplies of goods or services to an IFSC or SEZ unit for its authorised operations are zero-rated under section 16 of the IGST Act, so the supplier may supply without IGST under a Letter of Undertaking or bond, or follow the refund route, subject to SEZ endorsement and the authorised-operations and sale-realisation conditions in force since October 2023. Supplies by an IFSC or SEZ unit into India's domestic tariff area are not automatically GST-free; they are treated as imports and attract IGST and customs duty on the domestic side. Services by a fund manager in the IFSC to IFSC-based funds are exempt from GST. Transactions in specified securities on a recognised IFSC exchange are free of GST, STT, CTT and stamp duty, but that is exchange-specific, not a general exemption for every IFSC transaction.
What is the GIFT City 80LA tax holiday, exactly?
Section 80LA allows an eligible IFSC unit a 100% deduction of its specified income for any ten consecutive assessment years, at the unit's option, within the first fifteen years from the year it obtained IFSCA permission. It is conditional: the income must come from approved IFSC activities, must generally be received in convertible foreign exchange, and the claim needs an accountant's certificate. In years the unit does not claim it, MAT or AMT applies at a concessional 9% of book profit.
Are capital gains exempt in GIFT City?
Not as a blanket rule. The exemptions are specific and mostly for non-residents and specified IFSC funds: section 10(4D) for income from units of an IFSC fund and specified securities transacted by such funds; section 10(4E) for non-deliverable forwards, offshore derivative instruments and OTC derivatives entered with an IFSC unit; and section 10(4F) for royalty or interest on aircraft or ship leasing from an IFSC unit. Each carries conditions, and several commencement sunsets now run to 31 March 2030. A resident investor, or a transaction outside these provisions, is taxed under the ordinary rules.
Do the GIFT City tax benefits apply automatically?
No. They are conditional on eligibility, approved activity, foreign-exchange receipt where required and the relevant certificates, and they assume genuine substance in GIFT City. India's general anti-avoidance rule and the principal-purpose test apply, so benefits can be unwound where a structure lacks a real commercial presence and purpose.
Key references
Key statutory references: Income-tax Act, sections 80LA and 10(4D), 10(4E) and 10(4F); IGST Act, section 16 (zero-rated supply) and the SEZ GST framework; the IFSCA (Fund Management) Regulations 2025.
This article is general information and not tax or legal advice. Tax law and IFSCA rules change, and positions should be confirmed for your specific circumstances before being relied upon.