GIFT City for NRIs: investing in India in foreign currency

GIFT City (Gujarat International Finance Tec-City) hosts India's International Financial Services Centre (IFSC) — a financial jurisdiction on Indian soil that is treated, for most regulatory and tax purposes, as offshore. It has its own unified regulator, the IFSCA, and everything inside it is denominated and settled in freely convertible foreign currency — US dollars rather than rupees. For an NRI, that combination changes the plumbing of investing in India: no NRE/NRO conversion on the way in, a domestic-law tax exemption instead of treaty paperwork, and no repatriation gate on the way out.

What NRIs can invest in

The tax regime: a domestic-law exemption, not a treaty claim

The centrepiece for NRI investors is Section 10(4D) of the Income-tax Act: income of a non-resident from the transfer of units of specified IFSCA-regulated funds is exempt in India, regardless of holding period. Budget 2024 extended the same treatment to IFSC retail schemes and ETFs at par with Category III specified funds, effective FY 2024–25, conditional on the investor having no permanent establishment in India. Around it sit the rest of the regime: Section 10(4E) for specified derivative income, zero STT and stamp duty on IFSC-exchange trades, a 10% concessional TDS on dividends from listed IFSC securities, and exemption of interest paid to non-residents on IFSC banking deposits.

Note what kind of relief this is. The domestic route's 0%-in-India positions rest on treaty residual clauses — they need a TRC and Form 10F every year, work only for residents of particular countries, and the MF-units reading is under departmental appeal. The GIFT exemptions are written into Indian law itself: they apply to any non-resident, need no treaty, no TRC, no Form 10F, and don't depend on which country you live in. The conditions are different in kind — the product must be IFSCA-regulated (not SEBI) and the transaction settled in freely convertible foreign currency. For investors solely in GIFT Category I/II AIFs with TDS fully deducted, even a PAN and Indian ITR may not be required.

How it differs from the domestic route

Four practical differences. Currency: you invest, hold and redeem in dollars — the rupee conversion happens inside the fund, not in your bank account (the underlying assets are still Indian, so INR exposure remains in the returns; what disappears is the conversion plumbing). Repatriation: because the money never enters the domestic rupee system, redemptions go back abroad without touching the NRO USD 1 million facility or Form 15CA/15CB. Tax basis: statutory exemption versus treaty claim, as above. Access: IFSC funds operate under IFSCA rules rather than the AMC-by-AMC restrictions that often complicate domestic onboarding for US and Canada residents — though US-side reporting questions (PFIC analysis among them) remain US-tax-professional territory regardless of where the fund sits.