Company Registration

GIFT City AIFs: 2026 Tax Benefits & Setup Guide

The GIFT City is recognized as India’s pioneering International Financial Services centre, established in Gujarat. It has rapidly evolved into a global institutional hub for the Alternative Investment Funds in 2026. 

India entered FY2026, and the GIFT city transitioned from an emerging IFSC to an institutional-grade jurisdiction for global fund managers seeking certainty, speed, and superior post-tax outcomes.  

The GIFT city offers sovereign tax exemptions, dollar-based operations, and a regulatory framework under IFSCA. It attracts fund managers from around the globe looking for high after-tax returns on Indian assets.  

This blog explores the 2026-ready setup procedure, eligibility criteria, recent tax benefits post-budget 2024 and 2025, and why GIFT IFSC outperforms legacy offshore hubs such as Singapore and Mauritius.  

Whether you are a global GP, family office or Indian fund house or an AIF registration in Gift City enthusiast, explore how GIFT City opens the door for unbeatable opportunities in India’s booming economy. 

What is GIFT City and why does it matter for Fund Managers in 2026? 

GIFT City is India’s first operational greenfield smart city and International Financial Services Centre, situated in Gandhinagar, Gujarat. Launched as a global financial and technology hub, it offers world-class infrastructure, unified regulation under IFSCA, and tax incentives unmatched in mainland India.  

Most fund managers prefer GIFT City for zero tax on non-resident income, pass-through status for most AIFs, no STT or GST on transactions, and seamless access to both Indian and global capital pools.  

GIFT city IFSC: Structure, Jurisdiction & Why it’s treated as Offshore? 

Constructed in 2008 and inaugurated in 2015, the GIFT City emerged from scratch into a fully functional financial hub with more than 500 entities, Grade-A office towers, international schools, hotels, and is directly connected to Ahmedabad airport. It functions like a separate jurisdiction with dollar-based banking, features of English common law, and 24/7 operations.  

Two stock exchanges – India INX and NSE IX – clearing corporations, banks, and over 50 fund managers make GIFT city India’s gateway for global investors seeking exposure to the fastest-growing major economy. 

GIFT IFSC vs Singapore, Mauritius and Cayman: The Post-Treaty Reality (2026) 

Unlike Singapore and Luxembourg, GIFT City offers complete tax exemption for non-resident investors, with zero withholding on most income streams. Unlike Dubai, GIFT City offers direct access to the Indian market without treaty shopping concerns or GAAR exposure.  

Mauritius and Cayman structures faced high scrutiny post-2017 treaty amendments, while GIFT IFSC enjoys sovereign tax benefits, much lower setup costs, and speedier regulatory approvals. Many global funds have migrated or launched new vehicles in GIFT City to help optimise after-tax returns for investors. 

Understanding the International Financial Services Centre (IFSC) Framework 

IFSC at GIFT City is a reputable foreign territory with separate banking, tax, and regulatory rules. It facilitates global financial services in foreign currency with seamless access to Indian markets under a liberalized regime. 

Role of IFSCA as the Unified Regulator 

The IFSCA serves as a single regulator for banking, capital markets, insurance, and funds in GIFT City. Established in 2020 by combining the powers of RBI, SEBI, IRDAI, and PFRDA. This unified approach delivers faster approvals, lighter IFSCA compliance, and global-standard regulations tailored to attract international players. 

Key Infrastructure & Ecosystem Advantages in GIFT City 

GIFT City hosts top-class office facilities, high-speed connectivity, dollar-based banking units from global banks, two international exchanges, arbitration centres, and on-site legal, accounting, and custody services.  

It also provides residential zones, international schools, hospitals, and hotels, creating a complete live-work-play ecosystem for fund managers and staff. 

What are Alternative Investment Funds (AIFs)? A Quick Recap 

AIFs are privately pooled investment vehicles that collect funds from sophisticated investors for investing in non-traditional assets, such as private equity, real estate, hedge strategies, and commodities, not the more usual stocks or bonds. 

Category I AIFs: Socially Desirable & Startup-Focused  

Category I AIFs are those that invest in startups, SMEs, social ventures, infrastructure, and venture capital funds. Government and regulators offer them incentives and concessions because they channel capital into economically or socially important sectors with high growth potential. 

Category II AIFs: Private Equity, Debt Funds & Fund of Funds 

Category II encompasses private equity, debt funds, real estate funds, and fund-of-funds. For such funds, leverage is prohibited except to the extent needed to cover temporary borrowing requirements. Owing to their simple structure and full tax pass-through benefit, they are the largest segment in GIFT City. 

Category III AIFs: Hedge Funds & Complex Strategies 

Category III AIFs use diverse and complex trading strategies, including leverage and derivatives. They include hedge funds, PIPE deals, and long-short equity strategies. In GIFT IFSC, they come with a partial tax exemption for non-residents despite their fund-level taxation in India. 

Why GIFT City IFSC is the preferred jurisdiction for New AIFs in 2026? 

GIFT City is the best option for AIFs in 2026, as it offers everything from zero tax for non-residents to full pass-through status for Category I and II funds and no STT or GST, dollar banking, and direct access to Indian assets. Global managers prefer it compared to traditional offshore centres. 

Access to Global Capital & India Growth Story   

GIFT City permits funds to raise USD from global investors while investing in high-growth Indian private companies, real estate, and public markets- the best of both worlds. 

Liberalized LRS, ODI & FDI Routes for Residents and NRIs  

Resident Indians and NRIs can invest in GIFT AIFs up to USD 250,000 per year under LRS and unlimited amounts through ODI routes without the approval hurdles imposed by the RBI. 

Competitive Edge Over Mauritius, Singapore & Cayman Structures  

Post-treaty changes, Mauritius and Singapore have increased withholding and GAAR risks. GIFT IFSC, on its part, offers sovereign tax exemptions with no treaty shopping concerns, lower costs, a much faster setup in less than 60 days.  

Plus, it provides complete exemption for non-residents from Indian capital gains tax, thereby emerging as the clear winner in 2026. 

Eligibility Criteria & Pre-Requisites for Launching an AIF in GIFT IFSC 

To set up an AIF in GIFT IFSC, applicants need to be registered as FMEs with IFSCA, with net worth requirements, minimum corpus attainment, skin-in-the-game contribution requirements, and investor accreditation-related requirements as prescribed under the 2025-26 regulatory framework. 

Who can act as Fund Manager (FME Requirements)? 

Two key managerial personnel with relevant qualifications and a track record group entity experience is highly considered. It is essential to have a minimum net worth of USD 500,000 for non-retail and USD 3 million for retail. Plus, no adverse regulatory history is required for any entity incorporated in India or abroad to register as an FME with IFSCA.  

This promotes ease of entry for global players, while advisory is handled by authorized FMEs and schemes are directly managed by the registered FMEs. 

Minimum Corpus Requirements Across Categories & Schemes   

Under the updated requirements, the minimum corpus for venture capital and restricted schemes is USD 3 million currently, while open-ended schemes investments start at USD 1 million, reaching USD 3 million within 12 months. 

The retail schemes also have USD 3 million. The angel schemes need USD 1 million. Venture capital schemes cap at USD 200 million to promote smaller funds aligned with global standards. 

Manager’s Co-Investment Rules 

FMEs or associates are expected to make a minimum investment of 2.5% of the targeted corpus, or USD 750,000 for larger close-ended schemes, up to a cap of 10% in non-retail schemes, and 5% or USD 1.5 million for open-ended ones.  

Retail schemes will require the lower of 1% AUM or USD 200,000. There will be exemptions for accredited investor schemes or relocations, with 2025 allowing up to 100% contribution under conditions to enhance flexibility. 

Retail Schemes vs Restricted (Non-Retail) Schemes   

The retail schemes target broad investors without a cap on numbers, with a minimum corpus of USD 3 million and 1% AUM skin-in-the-game, suitable for mutual fund-like products. 

While restricted schemes can be limited to accredited investors or a minimum of USD 150,000 per investor, participation shall be up to 1,000 participants with increased skin-in-the-game of 2.5-5% and a USD 3 million corpus, ideal for private placements in AIF categories I-III. 

Step-by-Step Process to Set Up an AIF in GIFT City IFSC 

Setting up the AIF in GIFT IFSC includes the incorporation of the Fund Management Entity, registration with IFSCA, securing approval, and achieving the first close.  

The process for AIF setup in the GIFT city usually takes 3 to 5 months, using single-window clearances for expediency. 

Choosing the Right Legal Structure (Trust, LLP, Company, Body Corporate) 

Under the IFSCA Fund Management Regulations, 2022, AIFs in GIFT City can take various structures for flexibility and limited liability, such as a trust, LLP for ease of partnership, a company for corporate governance, or a body corporate for specialised needs.  

Category I and II funds find a trust structure suitable due to pass-through taxation, while companies are ideal for retail schemes. The choice depends upon the investor base, preference for liability, and the strategy.  

Registration with IFSCA- Timeline & Documents Checklist 

• Online filing at the IFSCA portal as an FME should be done after incorporation.  

• Supporting documents includes incorporation certificate, proof of net worth, KMP resumes, business plan, draft PPM.  

• Sponsor commitment amongst others, with a minimum of US$500,000 for non-retail applications.  

• Pre-application consultations are permissible but not mandatory.  

The time for approval can take up to 30 to 45 working days for granting authorisation to the FME, a maximum of 60 days at the time of registration.  

The registration fee ranges from $5000 to $15,000, starting with application fee is USD 2,500, ranges depending upon the category. Additional fees for filing offer documents are levied as per entity type, USD 7500 for venture capital to USD 22,500 for retail/ category III AIF.  

Opening Bank Accounts & Obtaining PAN/TAN in IFSC  

Open USD-denominated accounts with IFSC Banking Units (IBUs), post-registration, such as HSBC or Deutsche Bank branches in GIFT City.  

PAN is not required for non-residents and foreign entities to open an account if there is no Indian tax liability, instead, the Form 60 declaration is to be provided along with the incorporation certificate and home-country tax ID.  

TAN is necessary to obtain for TDS compliance. This process takes around 7 to 14 days. In 2025, digital KYC using Aadhaar or passport simplifies this further and allows easy forex inflows under LRS/ODI seamlessly. 

Launch Timeline: From Application to First Close 

For the end-to-end timeline, it averages 3-5 months in 2025: 2-4 weeks for FME incorporation, 30-60 days for IFSCA registration, 2-4 weeks for banking/PAN-TAN setup, and 4-6 weeks for marketing and first close. Raise a minimum corpus of USD 3 million within 4-8 weeks from the launch date.  

Green-light provisions immediately allow the filing of the scheme for accredited investors, hence reducing delays. Realistic scenario: An application can be made in January and get its first close by April, with full deployment by mid-year. 

GIFT City Benefits for AIFs- The Game Changer  

Budget 2025 extended tax holidays for IFSC units to 2030 and further provides an exemption for derivatives and P-Notes while reducing minimum investments.  

Building this momentum, a transformative change is expected in April 2026, enabling the mutual funds and ETFs to relocate to GIFT city from offshore locations such as Mauritius or Singapore on tax-neutral basis. This move is poised to unlock large-scale fund migrations without any trigger to capital gains or exit tax exposure, significantly strengthening GIFT city’s appeal for global asset managers.  

Together, such updates position GIFT City AIFs as a game-changer, offering zero tax on non-resident income, full pass-through status for Category I and II AIFs, and no transaction taxes. 

Pass-Through Status for Category I & II AIFs (No Double Taxation)  

AIFs Category I and II in GIFT IFSC enjoy full pass-through taxation, meaning income flows directly to investors without fund-level tax. This eliminates double taxation, unlike domestic AIFs. Non-residents face zero Indian tax on offshore investments routed through these funds, boosting net returns significantly. 

Complete Tax Exemption for Non-Resident Investors 

The income from offshore assets and specified securities of non-resident investors of GIFT AIFs is fully exempt. Budget 2025 extends the same to P-Notes issued by IFSC FPIs and OTC derivatives under Section 10(4E) to ensure there is no Indian tax liability on foreign capital inflows. 

No PAN & No ITR Filing Requirement for Eligible Foreign Investors 

Eligible foreign investors in Category I/II AIFs are not required to obtain a PAN and file ITR, provided the fund withholds taxes at source. This 2025-compliant rule applies to offshore income and makes compliance easy for NRIs and global entities with complete transparency to Indian authorities. 

Zero STT, CTT, and GST on IFSC Exchange Transactions 

Transactions on IFSC exchanges, such as India INX, are no exempt from Securities Transaction Tax, Commodities Transaction Tax, or GST. This tax-saving will remain in place during 2025 with no changes for equity, derivatives, and commodity trades, thus making GIFT AIFs more competitive than their mainland or offshore alternatives. 

GST Exemption on Fund Management Fees  

Fund Management Entities in GIFT IFSC claim full GST exemption on management fees from AIFs. This, along with a 10-year income tax holiday under Section 80LA, results in a reduction of up to 18% in operational costs and thus attracts global managers to relocate or launch funds here. 

Category III AIF Taxation- What’s Still Exempt for Non-Residents? 

Category III AIFs are taxed at the fund level, but non-residents remain exempt on transfers of offshore securities and specified IFSC assets. 2025 updates add exemptions for derivatives profits and P-Notes, shielding foreign investors from capital gains tax while taxing only Indian-sourced income at source. 

Detailed Taxation for Resident vs Non-Resident Investors  

Post-Budget 2025, AIF income taxation for investors remains pass-through for Categories I and II, with uniform rates for both residents and non-residents on capital gains.  

Business income of non-residents in IFSC funds is exempt; in all other cases, dividends and other income are taxed at slab rates or flat rates plus a 4% cess. 

Nature of Income	Tax Rate for Non-Resident Investors	Tax Rate for Resident Investors
Business Income (trading profits, derivatives, etc.)	Fully Exempt	Taxed at applicable slab rates
Dividend Income	20% + surcharge + 4% cess	Taxed at applicable slab rates
Long Term Capital Gains (LTCG)- Section 112A (STT-paid equity shares, equity-oriented units, business trust units)	12.5% (above ₹1.25 lakh) + surcharge + cess	12.5% (above ₹1.25 lakh) + surcharge + cess
Other Long Term Capital Gains (LTCG)	12.5% + surcharge + cess	12.5% (without indexation for assets acquired after 23 Jul 2024)
Short Term Capital Gains (STCG)- Section 111A (STT-paid)	20% + surcharge + cess	20% + surcharge + cess
Other Short Term Capital Gains	Applicable slab rates	Applicable slab rates
Interest Income	Applicable slab rates or 20%	Applicable slab rates
Income from transfer of offshore securities/derivatives (non-Indian source)	Exempt	Taxable as per source rules
Income from transfer of foreign currency bonds, GDRs, rupee-denominated bonds issued by Indian companies outside IFSC	Exempt	Taxable

Business Income Exemption for Non-Residents 

Budget 2024 provides an exemption to non-residents from taxation of business profits attributable to units in retail AIFs and ETFs in GIFT IFSC by extending pass-through benefits.  

It covers income on trading in derivatives and securities, subject to no permanent establishment in India. For residents, there is slab taxation, but non-residents are subject to nil withholding, which may incentivise more foreign inflows into high-frequency strategies. 

Dividend, STCG, LTCG, and Other Income Treatment 

Dividends from AIFs attract 20% TDS in the case of non-residents and slab rates in the case of residents. LTCG uniformly at 12.5% with exemption of 1.25 lakh under 112A, STCG: 20% if STT is paid on such assets, otherwise slab rates. Other kinds of income, such as interest, are taxed according to the slab rates.  

Key Budget 2025 Announcements Impacting GIFT City AIFs 

Budget 2025 followed up with the addition of tax-neutral relocations for funds, exemptions for P-Notes and derivatives, and clarification of capital gains treatment for Category I/II AIFs. 

Business Income Exemption Extended to Retail Funds & ETFs  

Budget 2024 extended pass-through tax exemptions to retail schemes and Exchange Traded Funds in GIFT IFSC at par with Category III AIFs under Section 10(4D).  

Profits and gains attributable to non-resident unit holders are fully exempt, and thus no fund-level taxation is payable on trading income from derivatives and securities. This is applicable from FY 2024-25, provided no permanent establishment exists in India.  

Residents remain liable at slab rates, but the measure makes retail products tax-efficient and increases foreign inflows. More than 20 new retail funds were registered by December 2025, with AUM crossing over USD 2 billion, according to IFSCA data. 

Core Settlement Guarantee Fund Tax Exemption 

Budget 2024 expanded tax exemptions to specified income of Core Settlement Guarantee Funds established by IFSC clearing corporations, mirroring benefits for domestic entities. This includes guarantee fund contributions and investment income, which will be exempt under new provisions from FY 2024-25. The exemption keeps these funds outside the ambit of corporate taxation and hence promotes healthy risk management with no fiscal drag.  

In GIFT City, this will help the India INX and NSE IX exchanges by reducing the cost of trading for market participants. Last year (2025), this helped achieve a 30% jump in derivatives volumes, thereby bringing better liquidity for AIFs trading on IFSC platforms without compromising systemic stability. 

Relaxation in the Source-of-Funds Rule for Venture Capital Schemes   

Budget 2024 relieved IFSCA-regulated venture capital funds in GIFT IFSC from requirement to disclose the source of funds when extending loans or investments to assesses, thereby exempting them from Section 68 scrutiny. It granted parity with SEBI VCFs with applicability from FY 2024-25 and reduced compliance burdens and litigation risks.  

Earlier, unexplained credits invited 60% tax plus penalties. This change, along with the abolition of angel tax, has triggered USD 1.5 billion of new commitments to Category I AIFs as of mid-2025. It will facilitate faster deployments into startups and SMEs, positioning GIFT as a preferred hub for global VCs targeting India’s innovation ecosystem. 

GIFT City vs Domestic India AIFs- Side-by-Side Comparison 2026 

Previous year (2025), GIFT City AIFs highlighted domestic India AIFs with zero tax on non-resident income, pass-through for Categories I/II, no PAN/ITR for foreigners, and IFSCA single-window approvals.  

Domestic AIFs are fraught with SEBI complexities, higher GST/STT, and forex limits. GIFT offers USD flexibility and global access, driving 40% more foreign inflows per IFSCA data. 

Taxation, Withholding, Compliance & Reporting Differences in GIFT City vs Domestic India AIFs 

GIFT AIFs have a 100% tax holiday under Section 80LA for 10 of 15 years on business income, full exemption from GST on management fees, and zero STT/CTT on IFSC trades. Categories I/II have a pass-through without double taxation, non-residents are exempted on offshore-derived income.  

No requirement to obtain PAN/ITR if TDS is deducted. Domestic AIFs are subject to 18% GST on fees, STT/CTT on mainland trades, and MAT/AMT up to 15%. Withholding at 20% is available for dividends/LTCG, with mandatory PAN/ITR.  

Compliance in GIFT uses IFSCA-maintained SWIFT for 30-60-day approvals, reporting quarterly to one regulator. Domestic requires SEBI’s multi-agency nods, which take 60-90 days, besides annual audits and FEMA filings for foreign investments, and NDI Rules reporting, increasing compliance by 25-30%. 

Investor Base Flexibility & Currency Advantages between GIFT City vs Domestic India AIFs 

GIFT AIFs have unlimited non-resident investors without FDI caps, NRIs/OCIs under liberal LRS/ODI (USD 250,000/year), and accredited investors from over 190 countries via USD/foreign currency.  

No 25% overseas investment limit, relocations are tax neutral. Domestic AIFs limit non-residents to 49% of Categories I and II, require SEBI approval for more than 25% abroad, and do INR-only transactions with FEMA hurdles. GIFT allows for dollar-denominated funds, free remittances, and the FPI/AIF/PMS routes for global pools.  

In FY2025-26, this flexibility attracted more than $5 billion in foreign commitments against $2 billion in domestic, according to SEBI/IFSCA. Currency hedging reduces forex risks by 15%, further enhancing returns for international HNWIs and family offices chasing India’s growth. 

Practical Challenges and How to Overcome Them 

Accordingly, the setting up of AIFs in GIFT City IFSC holds immense promise, but there are challenges on various dimensions like regulatory flux, talent gaps, and operational logistics. Below are key challenges and targeted solutions based on 2026 experiences: 

Evolving Regulations and Approval Delay challenges  

Challenge: Certain frequent updates to IFSCA rules, such as the 2025 amendments related to first close timelines, create much uncertainty for smaller funds. 

Solution: Early engagement with IFSCA through the pre-application consultation at the SWITS portal, in association with a local advisor like Auxano for single-window clearances, facilitates a timeline reduction to 30-45 days. 

Banking and Forex Inefficiency Challenges 

Challenge: Banking and Forex Inefficiency results in limited IBUs from global banks, delays in USD remittances, and the KYC for foreign investors. 

Solution: Avail the services of established providers such as HSBC or Deutsche Bank in GIFT. Leverage digital KYC tools and pre-approve LRS/ODI routes to enable account opening in 7-14 days. 

Talent Acquisition and High Costs Challenges 

Challenge: Shortage of IFSC-specialized professionals drives up salaries, operational costs 10-15% higher than mainland. 

Solution: Leverage Gujarat subsidies for office space, hire hybrid teams via platforms like LinkedIn, and relocate experienced managers with tax-neutral incentives under Budget 2025. 

Limited Ecosystem Maturity Challenges 

Challenge: Fewer service providers for custody, legal, and arbitration compared with Singapore.  

Solution: Leverage onshore IFSCA-accredited vendors and outsource to Mumbai affiliates. For family offices, move to FIF structures to avoid 33.33% concentration limits.  

Investor Onboarding and Clarity on Overseas Investments Challenges 

Challenge: Unclarity or confusion in FPI/FVCI licensing for global trades deter NRIs.  

Solution: File PPMs with clear disclosures, refer to IFSCA FAQs for guidance. Engage in dollar-denominated schemes targeting accredited investors to ensure speedier commitments. 

Who should consider AIF Setup in GIFT City in 2026?  

In 2026, global fund managers, family offices, ultra-HNIs, and Indian fund houses want tax-free returns for foreign investors, dollar-based structures, and easy India access should set up AIFs in GIFT City to leverage sovereign tax benefits and IFSCA’s fast-track regime. 

Global Fund Managers Targeting Indian Assets 

International private equity, venture capital, and hedge fund managers looking to invest in Indian startups, real estate, and listed securities find GIFT City ideal.  

They raise USD globally, pay zero capital gains tax for non-residents, avoid treaty risks, and deploy capital faster than Singapore or Mauritius structures, with more than $8 billion capital in 2025. 

Family Offices & HNIs Seeking Tax-Efficient Structures  

GIFT City AIFs are set up for tax-free succession planning and India exposure by multi-family offices and ultra-high-net-worth individuals from the Middle East, Europe, and Southeast Asia.  

There is no Indian tax on offshore income, with confidentiality of structures and direct ownership of Indian private assets permitted, at average ticket sizes over USD 20 million in 2025. 

Indian Fund Houses Wanting Dollar-Denominated Funds  

Large Indian asset managers like HDFC, Kotak, and new-age platforms launch dollar-denominated Category II and III funds in GIFT City to attract NRI and global capital. They offer investors zero tax on gains, hedge currency risk, and access liberalized LRS/ODI routes, managing over USD 12 billion in GIFT AIFs by December 2025. 

To Wrap Up 

Currently, in 2026, GIFT City IFSC has now become the largest onshore and offshore centre for Alternative Investment Funds. It has surpassed the hub centres of Singapore and Mauritius.  

GIFT City offers unmatched post-tax return for global and local investors through sovereign tax exemptions, complete pass-through for Category I and II, zero transaction taxes, dollar-denominated flexibility, and single-point IFSCA regulation.  

Additions to Budget 2024-2025-cum-retail fund exemption and neutral relocation taxes, also accelerated the inflows beyond USD 20 billion. To the fund managers who take positions in the India growth story sans offshore risks, GIFT City is no longer an alternative but the destination of choice. Looking for expert assistance for AIF registration in Gift City or meeting compliance needs? Feel free to reach out to our experts at Enterslice.  

Frequently Asked Questions GIFT City AIFs