Investing via GIFT City? Understand the rules, opportunities & tax implications

DSP IFSC, a unit of DSP Asset Managers, recently launched the DSP Global Equity Fund — making it the first retail-focussed offshore fund to be rolled out from GIFT City. The fund provides investors a gateway to global equity markets through India’s international financial hub.

GIFT City comes with fewer regulatory hurdles, better tax treatment, and increasing access for retail participants.

The interest, particularly among HNIs and NRIs, for investment in mutual funds via this route is rising, but awareness of the procedure, opportunities, challenges, and tax implications continue to be relatively low.

Opportunities for Indian residents and NRIs

Resident and non-resident Indians (NRIs) are increasingly diversifying their portfolios through GIFT City, leveraging its globally aligned regulatory ecosystem and tax-efficiency.

NRIs can invest in Indian markets (equity, mutual funds, debt, unlisted shares, etc) through inbound funds and also in global markets (equity, ETFs, debt etc) through outbound funds.

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The KYC, remittance / repatriation, and taxation is very friendly for NRI investors, and on par with other global jurisdictions.

“Resident Indians can invest only in global markets (stocks, MFs/ETFs, debt etc) through outbound funds. This route provides easy access to global markets via the LRS (Liberalised Remittance Scheme) route, which is not available through mutual funds due to regulatory issues,” said Vaibhav Shah, Head, Products, Business Strategy and International Business, Mirae Asset Investment Managers (India).

According to Niteen D, Director and CEO, Anand Rathi International Ventures (IFSC) Private Limited, NSE IFSC Receipts, through which Indians can invest in unsponsored depository receipts (which give exposure to the top 50 US stocks) is one product getting lot of attention from investors.

“The NSE IX exchange also has a derivative product, the GIFT Nifty, which is popular among NRIs because of its longer trading hours and high liquidity,” said Niteen D.

The recent launch of GIFT City’s first global mutual fund by DSP AMC has also created a lot of buzz among Indian investors.

GIFT City vs traditional domestic investment routes

The fundamental distinction lies in GIFT City’s unique jurisdictional treatment — it’s considered `overseas’ for exchange control purposes, but `Indian’ for tax purposes. This creates a regulatory arbitrage that traditional routes don’t offer.

“Unlike mutual funds with overseas mandates or direct LRS investments, GIFT City provides a single-window access to both Indian and global markets. An investor can trade US stocks in the morning and Indian derivatives in the afternoon, all from the same platform with unified custody and settlement,” explained Viram Shah, Founder and CEO, Vested Finance.

Outbound funds in GIFT City open up international opportunities not available through the mutual fund route, which is impacted by RBI-imposed limits.

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Most funds launched in GIFT City are AIFs (Alternative Investment Funds, hence the ticket size is large — $150,000+. All investments via GiFT City have to be within RBI’s (Reserve Bank of India’s) LRS limit of $250,000 per person per financial year. One can also invest in stocks and ETFs (exchange-traded funds) through brokers via the LRS route.

“However, in this case investors have to manage their own stock/fund selection, brokerage, custody charges, currency conversion, etc, unlike when investing via the fund route, where a professional fund manager can help with better investment solutions.

“Institutions can invest via the OPI (overseas portfolio investment) route. Here the limit is significantly higher — 50 percent of their net worth per the last audited balance sheet,” said Vaibhav Shah.

Traditional overseas investing requires multiple accounts to be opened, currency conversion, and navigating different regulatory frameworks. GIFT City consolidates all this into a streamlined process with seven Indian brokers providing professional service.

The fractional ownership model through Unsponsored Depository Receipts (UDRs) allows investors to build diversified portfolios of expensive global stocks with a smaller capital commitment than would be possible through direct investment.

GIFT City’s tax edge over direct overseas investment

GIFT City has emerged as a tax haven of sorts for NRIs looking to optimise returns without wrestling with India’s complex tax web.

The elimination of transaction taxes creates additional value. The securities transaction tax (STT), commodity transaction tax, and stamp duty — all standard in domestic markets — are waived for GIFT City transactions. For active traders, the savings can be substantial over time. A typical equity transaction in domestic markets attracts 0.1 percent STT — significant for frequent traders.

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“However, for Indian residents, the tax advantages are more nuanced. While there are no preferential income tax rates, the absence of transaction taxes provides cost benefits. Then there’s the potential currency appreciation — if the Dollar appreciates from 83 to 86 against the Rupee during an investment period, the 3.6 percent gain enhances overall returns. This currency hedge is inherent in GIFT City investments, unlike domestic mutual funds where currency exposure is managed by fund managers,” said Viram Shah.

Indians are required to pay 12.5 percent LTCG / 20 percent STCG (short-term capital gains) tax (as applicable), including taxes per one’s income slab. Indian investors under RBI’s LRS are also required to pay TCS (tax collected at source) of 20 percent if the remittance for investment is above Rs 10 lakh (per Budget 2025), but the payment can be treated as advance tax by the investor.

Capital gains, dividends taxable

For Indians, dividends are also taxable per one’s income slab. In case of investment in US stocks via UDRs, the dividends offered by US companies are taxable at 22.5 percent in GIFT City.

The fee structure 

Investors and traders can open their trading and demat accounts with any of the registered brokers approved by the IFSCA (International Financial Services Centre Authority) in GIFT City.

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“Brokers charge trading account opening fees, AMC fees, and platform fees depending on the customer’s usage, and it differs from broker to broker. There are very few trading members that provide a digital KYC account opening platform and mobile trading app at nominal monthly fees. The trading transaction cost includes only the brokerage for derivative products or investment in US stocks. For investment in AIFs or PMS products, usually the AMC charges are in the range of 1.5 percent to 2.5 percent,” said Niteen D.