Understand the potential tax on investments in GIFT IFSC funds, SEBI AIFs and PMS. Choose your investment, tell us who is investing, and see how the tax calculation works.
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224. (1) Irrespective of anything contained in any other provision of this Act and subject to the provisions of this section, where a person, being a unit holder of an investment fund, out of investments made in the investment fund, receives any income or any income accrues or arises to him, such income shall be chargeable to income-tax in the same manner as if, it were the income accruing or arising to, or received by, such person, had the investments made by the investment fund been made directly by him.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
(iii) Any income, other than that proportion of income which is exempt under Schedule V (Table:
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate of— (a) income-tax calculated on such long-term capital gains exceeding ₹125000 at the rate of 12.5%; and (b) income-tax payable on the total income as reduced by long-term capital gains referred to in sub-section (1) as if the total income so reduced were the total income of the assessee.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
197. (1) Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset which is chargeable under the head “Capital gains”, the tax payable by the assessee on the total income, subject to sub-sections (2), (3) and (4), shall be the aggregate of— (a) income-tax payable on the total income as reduced by such long-term capital gains, had the total income, as so reduced, been his total income; and (b) income-tax calculated on such long-term capital gains at the rate of 12.5%.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
(101) (a) “short-term capital asset” means a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its transfer; and (b) where the capital asset is a— (i) security listed in a recognised stock exchange in India; or (ii) unit of the Unit Trust of India; or (iii) unit of an equity-oriented fund; or (iv) zero-coupon bond, the provisions of sub-clause (a) shall have effect, as if for the words “twenty-four months”, the words “twelve months” had been substituted;
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
9. Any income accruing or arising to, or received from a specified fund or on transfer of units in a specified fund. A unit holder of a specified fund. Nil.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
[(C) of which all the units other than the unit held by a sponsor or manager are held by non-residents except,–– (I) where such non-resident becomes resident under section 6(2) or (3) or (4) or (5) or (6) or (7) in any tax year subsequent to that tax year; and (II) the number of units held by such resident unit holder or holders do not exceed 5% of the total units issued and shall fulfil such other conditions as may be prescribed; or]
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
304. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially and for this purpose,— (a) the representative assessee shall be liable to assessment in his own name in respect of that income and any such assessment shall be deemed to be made upon him in his representative capacity only; and (b) the tax on such income shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from the representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
No. Only a fund that qualifies as a specified fund gives its unit holders that treatment, and a fund qualifies only if its units (other than the sponsor’s or manager’s) are held by non-residents, with a limited exception. A GIFT IFSC fund that takes Indian residents is taxed as a trust.
Not necessarily. Tax deducted at source is an advance. A resident with a ₹5,00,000 long-term gain from a Category II fund owes ₹65,000 (12.5% plus 4% cess); the fund deducts ₹50,000 (10%), leaving ₹15,000 to pay with the return.
No. The fund manager, the fund and the investors are separate taxpayers. A deduction available to an IFSC fund management company reduces its own taxable income only; it does not make the investors’ returns tax-free.
No. The specified-fund exclusion is built on non-resident unit holders. Residents generally cannot be admitted without the fund losing that status, apart from investors who become resident later, up to 5% of the units and subject to prescribed conditions.
No. The deduction covers income from the approved business activities of the IFSC unit. Income from anything else falls outside it. The deduction also runs only for the period the section allows: for an IFSC unit, 20 consecutive tax years out of 25, at its option.
Estimates for tax year 2026-27 under the Income-tax Act, 2025 as amended by the Finance Act, 2026. Indian income-tax only. Figures are estimates on the stated assumptions, not a tax opinion.
Meet the expert
Company Secretary & Compliance Officer
Global Horizons Capital Advisors (IFSC) Private Limited — an IFSCA-licensed investment banker
Published in The Chartered Accountant (Jun 2025, Jan 2025, Mar 2024) and Chartered Secretary (Aug 2023)
Prashant Kumar is a seasoned Company Secretary and corporate governance strategist with more than 13 years of experience advising large corporates, promoter-led groups and global businesses on compliance, regulatory risk and board governance. In GIFT IFSC, the IFSCA regime is his day job rather than a research topic.