What Is GIFT City? IFSC Tax Benefits and Regulatory Framework (2026)

GIFT City (Gujarat International Finance Tec-City) is a planned business district in Gandhinagar, Gujarat. Its International Financial Services Centre (IFSC) sits inside a Special Economic Zone and is designed for cross-border financial services such as banking, fund management, insurance, capital markets and aircraft or ship leasing. Businesses look at it for three things: a dedicated regulator, a tax holiday for qualifying units, and special exchange-control treatment.

The catch is that none of these applies automatically. GIFT City is not an offshore jurisdiction for every legal purpose, and each benefit depends on the entity, the activity and the transaction. This guide explains the framework and where the limits sit, so you can ask the right questions before recommending or setting up a structure.

Which law applies? For tax years beginning on or after 1 April 2026, the Income-tax Act, 2025 applies, and the references below are to that Act. Earlier years are still governed by the Income-tax Act, 1961 (where the IFSC deduction was Section 80LA).

Who regulates GIFT City IFSC?

The International Financial Services Centres Authority (IFSCA), set up under the IFSCA Act, 2019, regulates financial products, services and institutions in the IFSC. It acts as a single regulator for IFSC activity, which spares businesses from dealing separately with several domestic financial regulators for that activity.

IFSCA authorisation is not a free pass, though. Company law, income tax, GST and foreign-exchange rules can still apply to the same entity or transaction. An IFSCA licence covers the permitted IFSC activity; it does not replace those other requirements.

Section 147: the IFSC tax holiday

Section 147 of the Income-tax Act, 2025 is the successor to Section 80LA. It allows a deduction equal to 100% of qualifying income of an IFSC unit (from its approved business activities) and of an Offshore Banking Unit (OBU) located in a Special Economic Zone. The Finance Act, 2026 strengthened it from tax year 2026-27:

• Holiday period for IFSC units: 20 consecutive tax years out of 25, at the assessee’s option (previously 10 out of 15). The 25-year block runs from the tax year in which the unit obtained its IFSCA (or other specified) registration or permission.
• Holiday period for OBUs: 20 consecutive tax years (previously 10).
• After the holiday: from tax year 2026-27, Section 218 taxes income of the kind covered by Section 147(3) at a concessional 15%, rather than at the normal corporate rate. Its heading refers to the business income of IFSC units and OBUs, so the rate does not extend to other income of the entity. Surcharge and the 4% health and education cess apply on top, at the rates set by the Finance Act.
• New units: for a unit that begins operations on or after 1 April 2026, the deduction is available only if the unit is not formed by splitting up, reconstructing or reorganising a business already in existence in India, or by transferring such a business.
• Claim conditions: the deduction is claimed through the return of income and must be supported by an accountant’s report certifying the claim, along with the specified supporting documents.

Three points trip people up. First, the deduction applies to income from the unit’s approved business activities, not to every receipt of every entity in GIFT City. Second, the 31 March 2030 date is not a general deadline for IFSC businesses: in Section 147 it applies to income from transferring a leased aircraft or ship, and the same date appears in several Schedule VI entries for aircraft and ship leasing and in the definition of a specified fund. The Finance Act, 2025 moved most of these dates from 31 March 2025 to 31 March 2030; for the offshore banking unit investment division in the specified-fund definition, the change was made by the Finance Act, 2026. Third, the holiday is a deduction you must claim and evidence, not an automatic exemption.

There is also a related withholding relief. CBDT Notifications 74/2026 (aircraft) and 75/2026 (ships), both dated 3 July 2026 and effective from 1 April 2026, provide that no tax is to be deducted at source on lease rent paid to an IFSC leasing unit that opts for the Section 147 deduction. The lessor must give the lessee a statement-cum-declaration in Form No. 1(N) that sets out the 20 consecutive tax years for which it has opted for the deduction, and the form must be furnished and verified for each of those tax years in the manner the form specifies. In it, the lessor confirms its registration and that it continues to be an IFSC unit in that year. The relief applies only for the declared years; in any other year the lessee must deduct tax. The lessee must also report the payments made without deduction in its TDS statement.

Schedule VI: specific exclusions, not a blanket investor exemption

Schedule VI works differently from Section 147. Section 147 is a time-limited deduction that a qualifying IFSC unit or OBU claims on its own eligible business income. Schedule VI instead leaves specific items of income of specified persons out of total income altogether, and many of those persons are funds, investors, lenders or lessors dealing with the IFSC rather than the IFSC unit itself. Each entry has its own definition of who qualifies and its own conditions. Some relate to a specified fund and income from transactions on a recognised IFSC stock exchange; others cover particular IFSC-related items such as aircraft and ship leasing income.

Neither provision is a blanket exemption. It is wrong to say that every IFSC unit is tax-free under Section 147, or that every non-resident investor, every Category III fund or every investment routed through GIFT City is tax-free under Schedule VI. To rely on Schedule VI you need to identify the exact entry, confirm that the person qualifies, trace the income to the activity or transaction covered, and test every condition. Interest, dividends, derivatives, fund distributions and capital gains can each be treated differently.

GST and transaction taxes

Under Section 16 of the IGST Act, 2017, exports of services and supplies to an SEZ developer or unit for authorised operations are zero-rated, and GIFT IFSC sits within an SEZ. Zero-rating is not the same as an exemption. The supplier has to look at the recipient, the place of supply, the nature of the service, whether the supply is for authorised operations, the documentation and the refund or payment procedure.

For the same reason, a statement that all dealings between IFSC units are “fully exempt” is too broad. Domestic supplies, supplies between units and services to overseas customers can have different GST outcomes. Transaction-tax relief is also specific. Securities Transaction Tax does not apply to transactions on a recognised stock exchange in an IFSC where the consideration is paid or payable in foreign currency (section 113A of the Finance (No. 2) Act, 2004). Commodities Transaction Tax has a matching carve-out for transactions on a recognised association in an IFSC (section 132A of the Finance Act, 2013). The proviso to section 9A(2) of the Indian Stamp Act, 1899 exempts instruments of transactions on stock exchanges and depositories established in an IFSC. Each relief has its own conditions, so check it against the instrument, the exchange and the transaction.

FEMA: a separate question from tax and company law

Under the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, specified financial institutions set up in an IFSC are treated as persons resident outside India for FEMA purposes in the circumstances the regulations prescribe. That is exchange-control treatment only. An Indian company incorporated in GIFT City remains subject to Indian company law and is generally an Indian company for income-tax purposes. A branch of a foreign company raises different questions again.

The FEMA classification does not mean every transfer involving an IFSC unit is an outward remittance, or that every dealing with an overseas party sits outside FEMA. Capital contributions, loans, service payments, securities and transfers from a resident into the IFSC each need the correct RBI/IFSCA route and reporting, which should be settled before funds move. FEMA status also does not decide whether an individual must disclose an investment in the income-tax return, or whether a company must file the Foreign Liabilities and Assets return. Those are separate reporting questions with their own rules.

A review checklist for advisers

• Confirm the entity type, IFSCA permissions and the scope of permitted activity.
• Map each revenue stream to a specific deduction or exclusion; do not apply a headline benefit to total income.
• Check GST supply by supply, and assess STT, CTT and stamp duty separately.
• Document the FEMA route for every resident, IFSC and overseas transaction, including reporting and account requirements.
• Check withholding tax, treaty entitlement, tax residency, transfer pricing and disclosure obligations.
• Note commencement dates: the post-1 April 2026 conditions for new units and the 31 March 2030 dates in specific provisions.

GIFT City can work well for eligible financial activities, but the result depends on the business model, the permitted activity, the income stream and how the transactions are designed. Start from the current primary legislation, not from a general claim that the IFSC is “tax-free”. AskSolique supports this kind of cross-regulatory research across income tax, FEMA and IFSCA materials with answers linked to source documents; for a live structuring decision, still verify the provisions against the client’s facts and the latest amendments.

For fund structures, see our guide to GIFT City fund management; for foreign businesses and investors, see GIFT City for non-residents and foreign entities.

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. Provisions, notifications and circulars change, so check the version that applies to your transaction and tax year.

• 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: Section 218 (15% rate after the deduction period)
• Income-tax Act, 2025: Schedule VI
• Income Tax Department: Budget 2026 FAQs (explains the Finance Act, 2026 changes to Sections 147 and 218)
• CBDT Notification 74/2026 (TDS on aircraft lease rent to IFSC units)
• CBDT Notification 75/2026 (TDS on ship lease rent to IFSC units)
• Income-tax Rules, 2026 (notified text)
• International Financial Services Centres Authority (IFSCA)
• Foreign Exchange Management (IFSC) Regulations, 2015
• CBIC: GST law and notifications
• IGST Act, 2017: Section 16 (zero-rated supply)
• Securities Transaction Tax: Chapter VII, Finance (No. 2) Act, 2004 (incometaxindia.gov.in)
• Commodities Transaction Tax: Chapter VII, Finance Act, 2013 (incometaxindia.gov.in)