Zero Tax Benefits in GIFT City: All You Need to Know

Last Updated on: 2nd April 2025, 06:39 pm

Overview of GIFT City

What is GIFT City?

Gujarat International Finance Tec-City, commonly known as GIFT City, stands as a premier business district in Gandhinagar, Gujarat, uniquely designed to meet global standards in business and technology. This integrated development aims to position India as a global financial hub by attracting financial and IT services companies from around the world.

The infrastructure of GIFT City is tailored for high-end corporate activities, featuring world-class facilities including an advanced telecommunications network, power plants, and water management systems, all designed to provide a seamless business environment. The city’s strategic importance is enhanced by its status as an International Financial Services Centre (IFSC), which allows it to operate under special economic and regulatory conditions, offering substantial tax benefits and simplified procedures.

Comprehensive Tax Benefits in GIFT City

Income Tax Exemptions

GIFT City offers an array of enticing income tax exemptions that significantly reduce the fiscal burden on businesses operating within its precincts. Key among these is the 100% income tax exemption for eligible businesses for a period of 10 consecutive years within the first 15 years of operation. This incentive is designed to foster rapid growth and ease the initial financial challenges faced by new entrants into the market. The flexibility to select the exemption years provides businesses with the ability to strategize their financial planning to maximize tax benefits based on their revenue cycles.

Reduced Minimum Alternate Tax / Alternate Minimum Tax

For companies considering a base in GIFT City, the reduced rate of 9% MAT / AMT  are particularly compelling. While companies who have opted for beneficial taxation regime as per section 115BAA of the Income-tax Act, 1961 there is no applicability of MAT as well. However, for LLPs the 9% AMT continues to applyThis reduced MAT/ AMT  rate bolsters profitability and enhances the competitive edge for businesses operating in international financial services. 

GST and Customs Exemptions

GIFT City’s status as an IFSC also brings GST and customs duty exemptions, positioning it as a highly favorable destination for international trade and services. Services exchanged between units in GIFT City and their international counterparts are exempt from GST, which reduces operational costs significantly. Additionally, the import of goods and services into GIFT City for use in the operations of businesses is free from customs duties subject to certain conditions, making it an optimal site for companies that rely on international supply chains. These exemptions streamline the logistical and financial aspects of running a global business, allowing companies to operate with greater efficiency and reduced overhead costs.

The comprehensive tax benefits designed for businesses in GIFT City not only alleviate tax burdens but also strategically position the area as a dynamic hub for global financial services. By capitalizing on these benefits, companies can accelerate growth, maximize profitability, and enhance their competitive advantage in the global marketplace.

• Income Tax Exemptions: Businesses enjoy a Zero-Tax i.e. 100% income tax exemption for 10 consecutive years out of the first 15 years of operation.
• Reduced MAT / AMT rate: Entities benefit from a reduced MAT/AMT rate of 9% thereby allowing entities set up as LLP to upstream the profits further without any additional tax outflow.
• GST and Customs Exemptions: Services between units in GIFT City and international clients are exempt from GST, and imports for business use are free from customs duties subject to certain conditions.

Other incentives

Moreover, entities engaged in the trading of specified securities on recognized stock exchanges within IFSC are exempt from Dividend Distribution Tax (DDT), further enhancing the post-tax earnings available for reinvestment or distribution to shareholders.

Sector-Specific Tax Incentives in GIFT City

Banking and Financial Services

GIFT City is strategically positioned to bolster the growth of banking and financial services with robust tax incentives. Banks and financial institutions operating within this zone benefit from income tax exemptions for 10 consecutive years, which can be claimed over any 15-year period from the date of commencement. This significant tax relief is designed to attract major global financial entities, fostering a vibrant financial services ecosystem within GIFT City.

Insurance and Reinsurance

For insurance and reinsurance companies, GIFT City offers a conducive regulatory and tax environment tailored to encourage sectoral growth. These companies benefit from a reduced effective tax rate and GST exemption on operations within GIFT City—including transactions involving reinsurance risk transfer and premium collection—making it a compelling destination for global insurers and reinsurers seeking to expand in the Asia-Pacific region. The simplified regulatory framework further enables greater operational flexibility. Additionally, Budget 2025 has proposed exemption for proceeds from policies issued by IFSC Insurance companies subject to certain conditions.

Fund Management

Fund Management Entities (FMEs) in GIFT City also enjoy substantial tax benefits. Management fees earned by FMEs from funds are eligible for a 10-year tax holiday (within a 15-year window), and such income is not subject to GST, making it highly efficient for asset managers. Moreover, non-resident investors in a Category III AIF or retail scheme based in GIFT IFSC are exempt from tax on income earned from specific securities, subject to conditions. These include income from:

• Transfer of Indian securities (excluding shares of Indian companies)
• Securities issued by non-residents without a Permanent Establishment in India
• Offshore securities or specified securities traded on IFSC exchanges
• Income from securitisation trusts taxable under “profits and gains from business”

IT and Tech Companies

GIFT City has become a hub for IT and tech firms, including startups, thanks to forward-looking tax regimes. These entities enjoy a 100% income tax exemption for up to 10 consecutive years within their first 15 years of incorporation. Additional benefits include capital subsidies and discounts on land and infrastructure as per the Gujarat IT/ITeS Policy (2022–27), fostering an ecosystem conducive to innovation and growth.

By offering these sector-specific tax incentives, GIFT City enhances India’s global competitiveness and reduces the cost of doing business, making it an attractive destination for diverse industries seeking long-term growth.

• Banking and Financial Services: Banks and financial institutions enjoy income tax exemptions
• Insurance and Reinsurance: Insurance entities benefit from reduced effective tax rates and GST exemptions on operations within GIFT City, enhancing the appeal for global insurance and reinsurance businesses.
• IT and Tech Companies: Tech firms and startups are offered  income tax exemption (100% for up to 10 consecutive years out of first 15 years of incorporation), along with subsidies as per Gujarat state government’s IT/ITeS Policy (2022-27).

Long-Term Financial Impact of GIFT City’s Tax Benefits

GIFT City in India has emerged as a formidable competitor to established global financial hubs such as Singapore and Dubai, primarily due to its extensive tax benefits and strategic geographic positioning. Unlike Singapore, where corporate tax rates hover around 17%, and Dubai, known for its tax-free environment but higher operational costs, GIFT City offers a balanced proposition with zero income tax for the first 10 years and significant reductions thereafter. This makes GIFT City an attractive destination for businesses looking to maximize profitability while benefiting from a rapidly growing financial services ecosystem.

Furthermore, while Singapore and Dubai both offer robust infrastructures, GIFT City’s state-of-the-art facilities are tailored specifically for financial and tech companies, providing a cost-effective base with access to the vast Indian and Asian markets. GIFT City’s comprehensive regulatory framework is designed to facilitate ease of doing business, mirroring the regulatory benefits seen in these other financial centers but with added fiscal incentives.

How to Leverage GIFT City’s Tax Benefits

Setting Up Business in GIFT City

Establishing a business in GIFT City offers substantial financial incentives, streamlined due to a well-structured process. Here’s a step-by-step guide to setting up your company in one of India’s foremost economic zones:

1. Determine Eligibility: Verify that your business model aligns with the sectors supported in GIFT City, such as finance, tech, or international trade.
   
2. Business Registration: Initiate the process by registering your business with the GIFT City Authority. This involves submitting a detailed business plan and undergoing a due diligence process.
   
3. Obtain Necessary Approvals: Depending on your business type, secure specific approvals from relevant regulatory bodies.
   
4. Infrastructure Setup: Choose from ready-to-use office spaces or custom-built facilities within GIFT City, which offers world-class infrastructure tailored to the needs of high-tech companies and financial institutions.
   
5. Tax Registration and Benefits Activation: Register for GST and other tax-related formalities to avail various tax exemptions and benefits.
   
6. Operational Setup: With infrastructure and approvals in place, you can move towards operationalizing your business, from hiring staff to integrating IT systems.
   
7. Continuous Compliance: Ensure ongoing compliance with GIFT City’s regulatory standards and guidelines, benefiting from continuous support from the GIFT City Service Bureau.
   

Following these steps will enable your business to leverage GIFT City’s strategic location and tax benefits, setting a strong foundation for growth and profitability.

Compliance and Legal Considerations

Setting up in GIFT City not only offers tax benefits but also requires adherence to specific legal and compliance standards:

• Regulatory Compliance: Familiarize yourself with the IFSC Authority regulations, which are designed to be business-friendly yet ensure strict adherence to international financial standards.
• Financial Reporting: Companies in GIFT City must adhere to international financial reporting standards, ensuring transparency and regular audits are conducted to maintain compliance.
• Data Protection: Compliance with data protection laws is critical, especially for companies handling sensitive financial data, aligning with global standards like GDPR for European clients.
• Anti-Money Laundering (AML) Policies: Implement robust AML procedures to prevent, detect, and report potentially suspicious transactions, which is crucial for maintaining financial integrity within GIFT City.
• Employment Laws: While GIFT City offers flexibility in labor laws to attract international talent, companies must still comply with essential Indian employment regulations regarding wages, hours, and benefits.
  

Understanding and integrating these compliance and legal considerations into your business operations is vital for successful and lawful functioning within GIFT City. This strategic approach not only ensures regulatory compliance but also enhances business efficacy, contributing to a sustainable business model in one of India’s prime economic zones.

GIFT City, or Gujarat International Finance Tec-City, offers a compelling array of financial incentives designed to attract businesses and foster economic growth within its state-of-the-art infrastructure. As an International Financial Services Centre (IFSC), it provides significant tax benefits, including income tax exemptions, reduced MAT / AMT rates, and GST and customs duty reliefs. Businesses looking to establish operations in GIFT City can follow a streamlined setup process, from determining eligibility to obtaining necessary regulatory approvals and operationalizing their premises. Additionally, companies must adhere to strict compliance and legal standards, including financial reporting norms, data protection laws, and anti-money laundering policies, to ensure successful integration into this dynamic financial hub. These strategic advantages make GIFT City an attractive destination for companies aiming to expand their footprint in the Asian markets while benefiting from a competitive regulatory and tax framework.