GIFT City Tax Incentives 2025: Complete Business Advantage Guide

Among the measures taken by India to develop an internationally competitive financial center, developing the GIFT City tax incentives is arguably the most ambitious. For businesses and investors who want to establish a tax-compliant and globally linked base in India, GIFT City is an option worth considering. In this 2025 update, we examine the complete range of tax, regulatory, and incentive benefits that GIFT City businesses can avail themselves of, including Business registration in GIFT City, Transfer pricing advisory in GIFT City, and how to invest in India from abroad.  

What Is GIFT City & Its Strategic Position

GIFT City (Gujarat International Finance Tec-City) is home to India’s first International Financial Services Centre (IFSC) and operates as a multi-services SEZ. It operates in a unique regulatory environment overseen by the International Financial Services Centres Authority (IFSCA).  

The objective remains to provide borderless financial services, facilitate the flow of global capital, and offer a tax-competitive alternative to offshore financial and international monetary centers.  

Due to its unique operational structure (SEZ + IFSC), GIFT City units can avail of the SEZ benefits (customs, duty, GST, etc.) and the IFSC-specific financial incentives.

Key Tax & Incentive Advantages (2025 Update)

Below are the key tax, fiscal, and other incentive benefits provided to businesses located in GIFT City (particularly the IFSC units) in 2025:

1. Income Tax Holiday under Section 80LA

As per the Income Tax Act under Section 80LA, GIFT City IFSC units can claim up to 100% exemption on business income for any 10 consecutive years out of the first 15 years of operation.

This incentive remains at the core of the tax proposition since businesses can strategically choose which 10-year period to claim the exemption, providing flexibility based on which years are the most profitable.

2. Lower MAT / AMT / Alternate Tax

In years in which the IFSC units do not claim Section 80LA tax benefits or choose not to claim, IFSC units are still able to pay MAT and AMT at 9% tax on book profits. This means the tax liability on book profits will be 9%, which is more favourable than that of domestic companies.

This provides a fallback tax regime still much more favourable than other jurisdictions. 

3. Dividend & Withholding Tax

Dividends paid to the shareholders of IFSC units are not subject to Dividend Distribution Tax. 

According to certain regulations, dividends paid by IFSC units to non-residents are subject to a withholding tax of ~10% (plus applicable surcharge).

Payments to IFSC units related to interest and royalties may fall under the exemption of withholding tax after form-filing and meeting certain conditions. 

4. Exemptions on Capital Gains, GST, STT & Stamp Duty  

• Transactions within GIFT IFSC, including transfers of certain securities and derivatives, can be exempt from capital gains tax depending on the structure and instruments used by investors.

• Transactions made on IFSC exchanges are free of Securities Transaction Tax (STT) and stamp duty, as well as GST.

• GST is not charged on the supply of goods and services to and from IFSC units and between IFSC units. 

• Imported goods to SEZ/IFSC units (for authorised operations) are exempt from customs and import duties.

  
  

5. Expanded Derivatives / OTC & Finance Bill 2025 Changes  

Biggest update in 2025: 

• accepted under Section 10(4E) of the Finance Bill, profits made from OTC derivatives and offshore derivative instruments via GIFT IFSC are 100% exempt from income tax.  

• This greatly increases the range of instruments within the IFSC tax framework and is an attraction to financial services providers. 

• Additionally, the 2025 Budget extended the tax holiday period to March 2030 for IFSC firms and eased the regulations on relocating mutual funds, ETFs, and more to GIFT City.

  
  

6. Transfer Pricing & International Transaction Provisions

The transfer pricing regulations pertain to transactions involving a GIFT IFSC entity and non-residents. Many of these are positively shaped:  

• Unlike other regulations, this regime does not prescribe compliance with the arm’s-length principle as per international standards.  

• IFSC entities' specified payments may be exempt from withholding tax depending on specified conditions and form-filing.

• The 2025 framework removed the deemed dividend tax for listed foreign corporates with presence in GIFT IFSC.  

• Thus, appropriate Transfer pricing advisory in GIFT City for cross-border contracts will be needed to ensure compliance and tax benefit optimisation.

  
  

How to Make the Most of the Benefits: Business Registration in GIFT City & Process Flow  

To take full advantage of the benefits, a business must complete the registration along with GIFT City / IFSC compliance and integrated GIFT City / IFSC regulations. Below, we describe a recommended pathway:  

• Feasibility & Structure Decision  

Start with market research to determine potential, and if your business falls under the IFSC permissible activities (financial services, fund management, banking, insurance, capital markets, fintech, etc.). 

Determine if you would like to operate as a wholly owned foreign entity, branch, private limited company, or LLP.

• Entity Incorporation & Registration with GIFT City / IFSCA  

Incorporate the company under Indian corporate law (ROC), and apply for the IFSC license/permission through IFSCA. 

This step covers the registration for GIFT City as well as registration with the respective IFSC authority.  

• Get SEZ / IFSC Approvals and Allocate Infrastructure  

After obtaining your license, seek permissions for the SEZ/IFSC zone if applicable, obtain and secure your physical or virtual office, establish banking, and meet infrastructure requirements. 

• Designing Tax and Transfer Pricing  

Engage in GIFT City Transfer Pricing advisory for setting arm’s-length pricing on cross-border transactions, to stay compliant and optimize the outcomes.

Decide the appropriate years to claim the tax holiday and assess the best options for withholding and exemptions.   

• Compliance and Reporting   

Statutory books are to be maintained including audits, tax return filings, and IFSCA/SEZ Reporting, transfer pricing documentation, and the withholding filings, if applicable.   

Note: The GIFT IFSC regime contains simplified remittance/withholding forms for non-taxable income.   

• Ongoing Operations and Optimisation  

As the business matures, assess if there is value in entering new derivative or financial products. You may leverage the 10(4E) benefits. Periodic reviews are conducted with the Gift CFO or a specialist to ensure that you are maximising the benefits and incentives while maintaining compliance.

Investing in India from GIFT City  

GIFT City provides NRIs and foreign investors an entry point to tap into Indian markets using tax-efficient channels. Some of these include: 

• GIFT IFSC Fund structures (e.g., Alternative Investment Fund (AIF)) tax-efficiently flow into Indian equities or other assets.

• Gains on derivatives or offshore instruments routed through GIFT are potentially exempted under Section 10(4E).

• There are no STT, GST, or capital gains tax on trades executed through IFSC exchanges. 

• Investments in GIFT City can be made in many currencies. Repatriation of funds is easier (no forced in and out currency conversion).  

• In certain scenarios, NRIs can solely invest in Category I/II AIFs without tax return filing or PAN requirement.

• Ultimately, foreign investors using GIFT City stand to gain from tax-efficient investing while channeling investment to Indian assets.

We at Gift CFO understand what is involved in registering your business in GIFT City.

We are here to help you cover the fundamentals, which consist of:  

GIFT City business registration: 

At Gift CFO, we offer a comprehensive service that encompasses your entire GIFT City experience from entity formation and obtaining IFSC licenses, obtaining SEZ approvals, creating a strong Transfer Pricing strategy that will ensure compliant intercompany contracts and documentation, and everything a business might need to start operating in GIFT City. Our scope also includes structuring cross-border investments into GIFT City and providing advice regarding the best modalities to fund your entry from compliance, operational, and strategic perspectives. We will also assist in monitoring related compliance obligations, reporting, continuous audits, and bookkeeping, with special emphasis on assisting you in maximizing the use of key tax benefits available to you while you are operating in GIFT City.

In addition to setup, our services provide businesses with the means to develop forward-looking tax strategies, which may include when to take tax holiday benefits, which years to target for maximizing benefits, and when to enter derivatives or other funds in instrument modeled. For many businesses, "registry with Gift CFO" represents much more than paperwork; it is a complete, hands-on service where we manage your entire registry and post-registry experience to reduce friction and risks of missteps and be able to make progress and operate at ease.

Challenges, Risks & Best Practices

Although GIFT City incentivizes multiple businesses, some may be downsized:

• Not all business lines are admissible must comply with IFSC GIFT City permitted activities.

• Complying with all transfer pricing rules, documentation, audit, and reporting entails a substantial resource drain.

• The strategic use of a tax holiday may lead to a tax holiday being incorrect, misused, or untimely, resulting in a tax holiday being lost.

• Changes have already been monitored in 2025 (e.g., 10(4E) inclusion), and changes in future budgets may further detract from benefits.

Real operation presence or staff may be required by regulators to avoid claims of a mere shell.

Best Practices

• Engage a specialist (e.g., Gift CFO)

• Help defend transfer pricing audits with documentation and prepare transfer pricing master files.

• Design around the 10-year tax holiday

• Regularly assess for the new 2025 regime any additional instruments/products (e.g., derivatives) you offer.

• Keep abreast of IFSCA/budget alerts.

  
  

Conclusion

For GIFT City clients' passive investments in India, the 2025 tax regime translates to a package of tax holidays, reliefs, exemptions, simpler processes, and flexible alignment with additional compliance and strategic requirements. However, the principal benefit will come from a well-planned approach that involves registering a business in GIFT City and obtaining a robust transfer pricing advisor to comply with the IFSC framework.

Completing tax structuring, compliance, and ongoing optimization with partners like Gift CFO allows for a streamlined registration process and maximizes the benefits available to you.