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GIFT City: Growth, Development and the Future Ahead

Vinod G Joseph and Paridhi Jain


  • Gujarat International Finance Tec-City (GIFT-CITY) is India's first operational greenfield smart city located between Ahmedabad and Gandhinagar. 
  • GIFT-CITY provides a range of financial services, including international exchanges, banking and finance, alternative investment funds (AIFs), and global in-house centres (GICs), regulated by the IFSC Authority. 
  • GIFT-CITY is considered outside India for the purposes of the Foreign Exchange Management Act (FEMA), necessitating compliance with FEMA regulations for investments and transactions within the city.
GIFT City: Growth, Development and the Future Ahead
Puneet Vikram Singh via Getty Images


An International Financial Services Centre (“IFSC”) usually offers financial products and services to customers who reside outside the borders of the country where the IFSC is located, without being bound by domestic exchange controls or taxation. Gujarat International Finance Tec-City (“GIFT- CITY”) is India’s first operational greenfield smart city located on the banks of the Sabarmati river between Ahmedabad and Gandhinagar.

GIFT-CITY is around 12 km (7.5 mi) from Ahmedabad airport. The concept of setting up an IFSC in India was first envisioned in 2007 by the then Gujarat Chief Minister (and the current Indian Prime Minister) Mr. Narendra Modi. The total area earmarked for the development of GIFT-CITY is 359 hectares (886 acres) out of which the Special Economic Zone (“SEZ”) constitutes 106 hectares (261 acres). This multi-services SEZ consists of an IT/ ITES and exports hub, and an IFSC, which is being developed as a hub for banking, insurance, asset management, and other financial services. The non-SEZ area is also known as the Domestic Tariff Area or the DTA and caters to domestic businesses and activities. Mr. K. Rajaraman is the current chairman of the IFSC Authority.

Legislative Background

Section 18(1) of the Special Economic Zones Act, 2005 (“SEZ Act”) gives the Central Government the power to approve the setting up of an IFSC in a SEZ and prescribes the requirements for setting up and operating of such an IFSC. The Central Government can approve only one IFSC in any SEZ.

The SEZ Act allows an SEZ to be established either jointly or severally by the central government, state government, or any person for manufacture of goods or rendering of services, or both. In exercise of the powers conferred under Section 18 of the SEZ Act, the Government of India, vide Notification No. S.O. 968 (E) dated April 8, 2015 (“IFSC Notification 2015”), notified that units in an IFSC within SEZs shall be permitted to be set up and approved in accordance with the Special Economic Zones Rules, 2006, read with various other applicable guidelines and regulations framed by regulators such as the Reserve Bank of India (“RBI”), the Securities and Exchange Board of India (“SEBI”) and the Insurance Regulatory and Development Authority of India (“IRDAI”).

The IFSC Notification 2015 also prescribes the procedure for entrepreneurs to set up units in an IFSC. The International Financial Services Centre Authority Act of 2019 (“IFSCA Act”) established the International Financial Services Centres Authority (“IFSC Authority”) on April 27, 2020, to act as the nodal regulator for all IFSCs in India. The IFSC Authority functions under the supervision of the Department of Economic Affairs, Ministry of Finance, Government of India and is headquartered at GIFT-CITY, Gandhinagar, in Gujarat.

IFSC Authority

Section 5 of the IFSCA Act provides that the IFSC Authority shall consist of a chairperson, a nominee each from the RBI, SEBI, the IRDAI and the Pension Fund Regulatory and Development Authority. It shall also have two members who are officials of the finance ministry and two other members to be appointed by the Central Government on the recommendation of a selection committee. Section 12 of the IFSCA Act spells out the functions of the IFSC Authority, of which, the primary function is to develop and regulate the financial products, financial services, and financial institutions in the IFSCs.

Status of GIFT City under the Foreign Exchange Management Act, 1999 (“FEMA”)

India implements  exchange  controls  through various rules and regulations framed under FEMA. GIFT-CITY is deemed to be outside India, for the purposes of FEMA and so any investment by an entity in GIFT-CITY in a domestic Indian company or any payment by an entity in GIFT-CITY to a domestic Indian company must comply with FEMA and rules made under FEMA.

Perks and Exemptions

To promote the IFSC in GIFT-CITY, the Indian government has offered a number of perks and exemptions to enterprises set up in the GIFT-CITY.

Relaxations under the Companies Act, 2013

A company whose registered office is situated within an IFSC (“IFSC Company”) is exempt from several requirements applicable to companies under the Companies Act, 2013 (“Companies Act”). Some of the key exemptions are as follows:

  • IFSC Companies are exempt from undertaking internal audit, unless their respective articles of association specifically require the same. The time limit for the appointment of auditors does not apply to IFSC Companies. For ordinary companies, the removal of an auditor before the expiry of auditor’s term requires the prior approval of the Central Government. For IFSC Companies, if the Central Government does not communicate its decision regarding an application for removal of an auditor within 60 (sixty) days, the Central Government will be deemed to have given its approval.
  • Section 186(1) of the Companies Act bars ordinary companies from making investments through more than two layers of investment companies. It also has restrictions on providing loans, guarantees or providing security for loans taken by other companies. These restrictions are not applicable to IFSC Companies.
  • An IFSC Company can change its registered office (within the IFSC) by passing a board resolution and filing a notice of change with the Registrar of Companies (“RoC”) within 60 (sixty) days. In contrast, when an ordinary company changes its registered office within the same city, the notice of change has to be filed with the RoC within 15 (fifteen) days.
  • The provisions of the Companies Act which impose corporate social responsibility obligations on ordinary companies do not apply to IFSC companies for a period of 5 (five) years from the commencement of its business.

Tax Exemptions and Benefits

Any business enterprise setup in the IFSC, GIFT- CITY is eligible for a tax holiday with respect to its business income for any period of 10 (ten) consecutive years, out of 15 (fifteen) years, beginning with the assessment year relevant to the financial year in which it received permission to operate in IFSC, GIFT-CITY. Goods and Services Tax (“GST”) is not applicable on services received by companies in GIFT City, IFSC SEZ units or offshore clients.

Some of the sector specific tax exemptions and benefits given to businesses set up in GIFT-CITY are:

  • Any income received by an aircraft leasing company in the IFSC, GIFT- CITY on account of the transfer of an aircraft or aircraft engine, previously leased by it to any person, will also be exempt from tax, provided the aircraft leasing company has commenced its operations by March 31, 2024.
  • Income received by a Category I or Category II AIF on account of its offshore investments is not taxable in the hands of its non-resident investors. AIFs of all three categories which are set up as companies are exempt from payment of dividend distribution tax.
  • The income received by a non-resident on account of loans given to business enterprises setup in the IFSC, GIFT-CITY are not taxable in India.
  • A Category III AIF set up in an IFSC, in which all investors other than the AIF’s sponsor and manager are non-residents, is eligible for a number of exemptions and benefits under Section 10(4D) and Section 115AD of the Income Tax Act, 1961.

Relaxations under Employment Laws:

Under the Industrial Disputes Act, 1947, employers who propose to terminate the employment of workmen protected, are required to notify the labour authorities. This obligation has been done away with in GIFT-CITY. All businesses in GIFT-CITY have been classified as public utility services and hence employees of these businesses cannot go on strike unless they give 14 (fourteen) days’ prior notice to their employers.

Financial Services Offered In GIFT-CITY

International Exchanges.

Currently, two international exchanges have been have set up in the GIFT-CITY. NSE IFSC has been set up by National Stock Exchange, India and offers trading in various products including various types of derivatives. India International Exchange (India INX) has been established by Bombay Stock Exchange Limited and offers trading in all asset classes. India INX has also introduced the global securities market platform, which offers a debt listing framework at par with other global listing venues such as London, Luxembourg and Singapore. The India International Bullion Exchange IFSC Limited (IIBX) has been set up in GIFT-CITY by NSE, INDIA INX, NSDL, CDSL and MCX to provide a gateway to import bullion into India and to promote bullion trading, investment in bullion financial products and vaulting facilities in IFSCs.

Banking and Finance.

The Foreign Exchange Management (IFSC) Regulations, 2015 enacted by the RBI allows the setting up of IFSC Banking Units (“IBU”) in an IFSC. An IBU may be set up either by an Indian bank or a foreign bank which has an existing presence in India. An IBU set up by a domestic bank will be treated as an overseas branch of such bank. An IBU can offer all services that can be offered by Indian banks and the tax breaks discussed earlier make the setting up of an IBU an attractive proposition for both Indian and foreign banks.

The International Financial Services Centre Authority (Finance Company) Regulations, 2021 allow for the functioning of finance companies in the IFSC. The main distinction between an IBU and a finance company is that unlike an IBU, a finance company cannot accept deposits from the public. A finance company is required to comply with prudential norms and maintain a minimum capital ratio at 8% of its regulatory capital to risk weighted assets. It should also maintain a liquidity coverage ratio in the manner specified by the IFSC Authority. The sum of its aggregate exposures to a single entity or group of connected entities should not exceed 25% of its available eligible capital base.

Alternative Investment Funds.

The International Financial Services Centre Authority (Fund Management) Regulations, 2022 (“FM Regulations”) regulate the establishment and operation of alternative investment funds (“AIFs”) in the GIFT-CITYIFSC. The FM Regulations require the fund managing entity (“FME”) to be registered with the IFSC Authority as (i) an Authorized FME; (ii) Registered FME (Non-retail); or (iii) Registered FME (Retail).

An Authorized FME can launch Venture Capital Schemes which primarily invest in start-ups or early-stage ventures and can have maximum 50 (fifty) investors. A Registered FME (Non-retail) can launch Venture Capital Schemes as well as Restricted Schemes. Restricted Schemes can a have maximum 1,000 (one thousand) investors and are further divided into three sub-categories, which roughly correspond to categories under the SEBI (Alternative Investment Fund) Regulations, 2012. A Registered FME (Retail) can launch Venture Capital Schemes, Restricted Schemes and Retail Schemes. Retail Schemes are similar to mutual funds and do not have any cap on the maximum number of investors.

Global In-House Centres.

The International Financial Services Centres Authority (Global In-house Centres) Regulations, 2020 provide for the setting up of Global In-house Centres or GICs which offer support services to directly or indirectly, to entities within its financial services group for carrying out financial services. In order to register as a GIC with the IFSC Authority, the applicant’s parent/ group entities should be located in a jurisdiction that is complaint with Financial Action Tax Force recommendations.

Future Ahead for GIFT-CITY20

More than 450 (four hundred and fifty) entities operate in the GIFT IFSC across the full spectrum of financial services. According to IFSC’s official website, currently 25 (twenty-five) banks, 55 (fifty-five) FMEs, 43 (forty-three) fintech entities and 18 (eighteen) aircraft leasing entities have registered with the IFSC Authority. Until GIFT-CITY was established, most foreign investors invested in Indian businesses through tax-friendly jurisdictions such as Mauritius or Singapore. Now, more and more foreign investors are investing in India through feeder vehicles in GIFT-CITY. Since it is less expensive to set up in GIFT-CITY, it is expected that more and more foreign investors will prefer GIFT- CITY to other options such as Mauritius, Singapore or the Cayman Islands.