GIFT City for Non-Residents and Foreign Entities: FEMA, Tax and Structuring (2026)

GIFT City IFSC can be relevant to foreign businesses planning an IFSC presence, to non-resident investors looking at eligible funds or securities, and to groups running cross-border financial services. The first step is always to identify the legal person, the activity and the transaction. An IFSC entity can be incorporated in India under Indian law, while FEMA treats certain IFSC financial institutions as persons resident outside India for exchange-control purposes.

That special treatment does not make GIFT City “foreign territory” for every law, and it does not automatically exempt a transaction from Indian tax, FEMA or reporting rules. The sections below set out the main questions a structuring review should answer.

FEMA status: specific treatment, not a universal exemption

The Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 and related RBI and IFSCA rules give special exchange-control treatment to covered financial institutions and activities in an IFSC. Under those Regulations, a financial institution, or a branch of one, that is set up in an IFSC and permitted or recognised as such is treated as a person resident outside India. The treatment applies only to the institutions and activities the Regulations cover. It does not make every IFSC entity a non-resident, or take every transaction an IFSC entity undertakes outside the ordinary FEMA rules.

Apply that status to the particular entity and transaction. A payment or investment between a mainland Indian company and an IFSC unit is not automatically an ordinary domestic transfer, nor automatically an outward remittance. The route depends on whether it is a capital contribution, a loan, a service payment, a securities transaction or something else, and on the current RBI and IFSCA rules. Equally, you cannot assume that every dealing between an IFSC unit and an overseas entity falls outside FEMA: the resident-side transaction and the instrument still have to be analysed. Approval for one activity does not authorise every connected transaction.

Structures for foreign businesses

The right structure depends on the activity, ownership, operational presence, customer base and licensing rules. The main options to evaluate are:

• Indian company or wholly owned subsidiary set up for permitted IFSC activities, subject to company law, IFSCA and other requirements.
• Branch of a foreign company, where the legal framework and the regulated activity allow it. Under the IFSCA Fund Management Regulations, for example, a branch is open only to an entity already regulated for similar activity in India or abroad. Foreign-company registration, tax and licensing consequences need separate review.
• LLP or another legal form, where it is permitted for the intended IFSC activity. Not every financial activity can use every legal form: an Authorised or Non-Retail FME can be a company, LLP or branch, for instance, but a Retail FME can only be a company or a branch.
• IFSC Banking Unit (IBU) or IFSC Banking Company, available only to eligible Indian or foreign banks. An IBU is a branch of the bank and an IFSC Banking Company is a subsidiary. Both are regulated banking structures, not a general option for any foreign business.

For fund management, map the intended role (setting up an FME, launching a scheme, or using a third-party fund management arrangement) to the current IFSCA Fund Management Regulations before incorporating or starting operations. Our fund management guide covers the FME categories, net worth requirements and third-party framework.

Tax: separate the entity, the fund and the investor

The IFSC unit

Section 147 of the Income-tax Act, 2025 gives a 100% deduction on specified income of qualifying IFSC units for 20 consecutive tax years out of 25 (following the Finance Act, 2026), and business income after the holiday is taxed at a concessional 15% (plus applicable surcharge and cess). It is a benefit for qualifying units and eligible income, not a general exemption for foreign businesses that use GIFT City. Our overview of the GIFT City IFSC tax framework sets out the conditions.

Income from IFSC funds, securities and derivatives

Schedule VI to the Income-tax Act, 2025 leaves specified income of eligible persons out of total income, subject to conditions. For example, some relief relates to specified funds and qualifying transactions on recognised IFSC exchanges. This cannot be stretched into a statement that every non-resident is exempt on every IFSC investment or capital gain.

Interest on qualifying IBU deposits, derivatives and other financial income may be covered by specific provisions, but the instrument, counterparty, currency, fund status and conditions all matter. Dividends, interest, capital gains and fund distributions can be taxed differently. Any concessional withholding rate must be tied to the exact provision and recipient category, with surcharge, cess and treaty effects considered.

Treaty claims: Forms 41, 42 and 43

A non-resident may claim treaty benefits under an applicable double taxation avoidance agreement (DTAA), subject to the treaty, domestic law and documentation. Under the Income-tax Rules, 2026 (for tax years governed by the 2025 Act):

• Form 41 (rule 75(1)) is the non-resident’s statement of the information required by Section 159(8) for a treaty claim. It replaces Form 10F and is used alongside the tax residency certificate from the other country, not instead of it.
• Form 42 is an Indian resident’s application for a certificate of residence for treaty purposes under Section 159 (replacing Form 10FA).
• Form 43 is the certificate of residence issued for the purposes of Section 159 (replacing Form 10FB).

Form 42 is therefore not a second successor to Form 10F. For tax years still governed by the Income-tax Act, 1961, the old forms continue to apply. Take care with the numbering too: Forms 41 to 44 under the old 1962 Rules were unrelated forms.

Managing an offshore fund from India

An offshore fund managed from India can raise questions of Indian tax residence, business connection or permanent establishment. Section 9A of the Income-tax Act, 1961 provided a safe harbour: where the conditions were met, fund management by an eligible fund manager in India did not create a business connection for the fund, and the fund was not treated as resident in India merely because of the manager’s location. It was not an all-purpose exemption.

Under the Income-tax Act, 2025, the corresponding rule is in Section 9(12), with its conditions in Schedule I. The fund must meet conditions on non-residence, diversification, investor base and minimum remuneration to the manager. The manager can be located anywhere in India. It must be registered as a fund manager or investment adviser under the specified regulations, not be an employee or connected person of the fund, act in the ordinary course of its business, and, with its connected persons, not be entitled to more than 20% of the fund’s profits. Where the manager is located in an IFSC and began operations by 31 March 2030, the Central Government may relax or modify some of these conditions by notification, so check whether any such notification applies. Review the Schedule I text afresh rather than assuming the Section 9A conditions carry over word for word. A presence in GIFT City does not by itself settle residence or permanent establishment questions. This is a summary, not a complete eligibility test, so check the fund and the manager against the full text of Schedule I and any applicable notification.

If your investors are resident Indians

The Liberalised Remittance Scheme (LRS)

NRIs and other non-residents do not use LRS. For resident individuals, the general ceiling is USD 250,000 per financial year for permitted transactions. Under RBI’s circular of 10 July 2024 (A.P. (DIR Series) Circular No. 15), authorised dealers may allow LRS remittances to IFSCs for financial products and services under the IFSCA Act, 2019 within IFSCs, and for permitted transactions in other foreign jurisdictions made through a foreign currency account held in an IFSC. That ceiling is not blanket approval to invest in any IFSC product. Confirm that the purpose and route are permitted under the current RBI framework, and check product, intermediary and account conditions before remitting.

Tax collected at source (TCS) also applies. Under Section 394 of the Income-tax Act, 2025, which governs from 1 April 2026, the authorised dealer collects TCS on LRS remittances exceeding ₹10 lakh in a financial year: 20% for purposes such as investment, and 2% for education or medical treatment (reduced from 5% by the Finance Act, 2026). Education remittances funded by a loan from a financial institution are not subject to TCS. Section 394 has no general exemption for remittances to an IFSC, so check whether any specific relief applies before remitting. The remitter can claim the TCS as a credit, but it ties up cash.

FLA reporting and tax-return disclosure

The Foreign Liabilities and Assets (FLA) return is an annual RBI filing, generally required of Indian entities that have received foreign direct investment or made overseas direct investment, and due by 15 July each year. Do not assume that it is required, or not required, simply because an IFSC entity has special FEMA status. The obligation depends on the entity, the asset, liability or investment, the current RBI instructions and the reporting person’s facts.

Disclosure of foreign assets in the income-tax return (Schedule FA, or its equivalent in the return form notified for the year) is a separate question. Check the return form and instructions for the year, the legal form of the investment, beneficial ownership and the taxpayer’s residential status. FEMA treatment alone does not answer it.

A structuring checklist

• Define the business purpose, customer base, income streams and intended activity before choosing a legal form.
• Confirm the IFSCA authorisation and any separate company-law, RBI/FEMA or sectoral permissions.
• Review tax separately for the IFSC entity, the fund or vehicle, and each investor or recipient.
• Document the route for every mainland-India, IFSC and overseas transfer, including permitted purpose and reporting.
• Check LRS, TCS, FLA and tax-return disclosure individually; do not infer one from another.
• Verify treaty forms, withholding, beneficial ownership, transfer pricing and residence or PE exposure.

GIFT City can offer useful structuring options, but the benefit comes from the exact activity and conditions, not the location. For cross-border structures, line up company law, FEMA, tax and IFSCA analysis before money moves or a product is marketed. AskSolique supports research across income tax, FEMA and IFSCA materials in a source-linked workflow; for an actual transaction, check the primary provisions and current directions against the client’s facts.

Important: This article is a general overview, not legal, tax or investment advice. Eligibility and outcomes depend on current law, the entity and transaction facts, and compliance with all applicable conditions. Verify the latest primary sources before acting.

Primary sources and further reading

These official sources are starting points. Regulations and circulars change, so check the version that applies to your transaction and tax year.

• Foreign Exchange Management (IFSC) Regulations, 2015
• Reserve Bank of India: current directions
• RBI A.P. (DIR Series) Circular No. 15 (10 July 2024): LRS remittances to IFSCs
• Income-tax Act, 2025: Section 394 (TCS on LRS remittances)
• Income-tax Act, 2025: Section 147 (this page may still show the pre-amendment 10-out-of-15-year text; see the Finance Act, 2026)
• Finance Act, 2026 (No. 4 of 2026), Gazette of India, 30 March 2026: amends Sections 147 and 218
• Income-tax Act, 2025: Schedule VI
• Income Tax Department: Budget 2026 FAQs (explains the Finance Act, 2026 changes to Sections 147 and 218)
• Income-tax Rules, 2026 (notified text)
• IFSCA: Fund Management page
• Ministry of Corporate Affairs: company-law resources