Can a Fund Manager in GIFT City Pay Zero Income Tax?
Quick answer
On its eligible income, it can, if four things line up: it is a company that is an IFSC unit, the income comes from its approved IFSC business, it is within its deduction period, and it has opted for the section 200 regime. If any of these is missing, tax or a minimum tax can still arise.
Four separate rules interact here, and it helps to take them one at a time.
- A deduction reduces taxable income. An IFSC unit can deduct 100% of its income from approved IFSC business activities, for 20 consecutive tax years out of 25, at its option.
- A minimum tax can still apply. A company whose tax works out lower than its minimum alternate tax (MAT) pays the MAT instead. For an IFSC unit earning solely in convertible foreign exchange, MAT is 9% of book profit. So the deduction alone can leave a 9% bill.
- An exclusion can remove that minimum tax. MAT does not apply to a company that has opted for the 22% regime under section 200.
- The deduction survives the option. For an IFSC unit that opts for section 200, the 100% deduction stays available.
Put together, a company that meets every condition and opts for section 200 can pay no income tax on its eligible IFSC income.
Keep in mind: Only income from approved IFSC business qualifies; other income stays taxable. The section 200 option cannot be withdrawn once exercised. And an LLP is not a company: section 200 and MAT are company rules, and an LLP that claims the deduction pays alternate minimum tax instead: 9% of its adjusted total income (the deduction added back) for an IFSC unit earning solely in convertible foreign exchange, with credit for the excess in later years.
The two routes for an FME company
| Default regime | Section 200 regime | |
|---|---|---|
| 100% deduction on eligible IFSC income | Available, subject to its conditions | Available to an IFSC unit (section 200(4)) |
| Minimum alternate tax | Applies if tax is below 9% of book profit | Does not apply (section 206(1)(q)(ii)) |
| Tax on eligible IFSC income | Up to 9% of book profit, through MAT | Nil, if every condition is met |
| Tax on other income | Taxable | Taxable at 22% plus surcharge and cess |
| Can the choice be reversed? | Yes: the company can opt later | No: once exercised, it cannot be withdrawn |
Legal provisions and technical details
The deduction is section 147, with its period in section 147(2)(b) and the qualifying income in section 147(3). The 22% option is section 200, sub-section (4) keeps the deduction for IFSC units and sub-section (6) makes the option final. MAT is section 206(1); the exclusion is clause (q); the alternate minimum tax for persons other than companies is section 206(2).
Section 147(1): the deduction
147. (1) Where the following assessee has any income of the nature referred to in sub-section (3), there shall be allowed a deduction equal to 100% of such income:— (a) a scheduled bank, or a bank incorporated under the laws of a country outside India, and having an Offshore Banking Unit in a Special Economic Zone; or (b) a unit of an International Financial Services Centre.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 147(2)(b): 20 consecutive tax years out of 25
(b) in the case of an entity mentioned in sub-section (1)(b), for twenty consecutive tax years out of twenty-five years beginning from the relevant tax year, at the option of an 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
Section 147(3): the income that qualifies
(3) The income referred to in sub-section (1) shall be the income from— (a) an Offshore Banking Unit located in a Special Economic Zone; or (b) the business activities referred to in section 6(1) of the Banking Regulation Act, 1949 (10 of 1949), with undertakings in a Special Economic Zone or entities that develop, develop and operate, or develop, operate and maintain Special Economic Zone; or (c) the approved business activities of any Unit of an International Financial Services Centre set up in a Special Economic Zone; or (d) transfer of an asset being, an aircraft or a ship, leased by a unit referred to in clause (c) if such unit commenced its business operations by 31st March, 2030.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 200(1): the 22% option
200. (1) Irrespective of anything contained in this Act but subject to the provisions of Parts A, B, E and this Part (other than sections 199 and 201) of this Chapter, the income-tax payable for a tax year shall be at the rate of 22%, at the option of a person being a domestic company, in respect of the total income of such person computed in the following manner:— (a) without any deduction under— (i) section 45(2) or 47(1)(b); or (ii) Chapter VIII other than provisions of section 146 or 148; or (iii) sections specified in section 205(1)(a) to (g);
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 200(4): the deduction stays for an IFSC unit
(4) In case of a person, having a Unit in the International Financial Services Centre, which has exercised option under sub-section (5), the requirements contained in sub-section (1) shall be modified to the extent that the deduction as referred to in section 147 shall be available to such Unit subject to fulfilment of the conditions contained in that section.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 200(6): the option is final
(6) Once the option under this section has been exercised for any tax year, it shall not be subsequently withdrawn for the same or any other tax year.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 206(1)(a): minimum alternate tax
206. (1)(a) Irrespective of anything contained in any other provision of this Act, where in the case of an assessee being a company, the income-tax payable on the total income as computed under this Act for a tax year is less than the minimum alternate tax payable for such tax year, then— (i) the book profit shall be deemed to be the total income of that assessee for such tax year; and (ii) the assessee shall be liable to pay income-tax equal to the minimum alternate tax.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 206(1)(b): 9% for IFSC units
(b) For the purposes of clause (a), the expressions “minimum alternate tax” means the amount of tax computed on the book profit— (i) in case of a company being a unit located in an International Financial Services Centre and deriving its income solely in convertible foreign exchange, at the rate of 9%; (ii) in case of any other company, at a rate of [14%].
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 206(1)(q): companies outside MAT
(q) The provisions of this [sub-section] shall not apply to a person,— (i) being a company having income accruing or arising from life insurance business referred to in section 194(1) (Table: Sl. No. 6); or (ii) who has exercised the option under section 200(5) or section 201(2).
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 206(2)(a): alternate minimum tax for persons other than companies
(2) (a) Irrespective of anything contained in this Act, where the regular income-tax payable for a tax year by a person, other than a company, is less than the alternate minimum tax payable for such tax year, then,— (i) the adjusted total income shall be deemed to be the total income of that person for such tax year; and (ii) he shall be liable to pay income-tax equal to the alternate minimum tax.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 206(2)(b) to (d): adjusted total income, the 9% rate and who it applies to
(b) For the purposes of this sub-section,— (i) “adjusted total income” shall be the total income before giving effect to clause (a), as increased by deductions claimed, if any, under— (I) any section (other than section 149) included in Chapter VIII-C; (II) section 46 as reduced by depreciation allowable as per the provisions of section 33, as if no deduction was allowed in respect of the assets on which the deduction under that section is claimed; (ii) “alternate minimum tax” means the amount of tax computed on adjusted total income,— (I) in case of an assessee being a unit located in an International Financial Services Centre and deriving its income solely in convertible foreign exchange, at the rate of 9%; (II) in case of an assessee being a co-operative society, at the rate of 15%; (III) in any other case, at a rate of 18.5%; (iii) “regular income-tax” means the income-tax payable for a tax year by a person on his total income in accordance with the provisions of this Act other than the provisions of this sub-section; (iv) “Unit” means a unit established in an International Financial Services Centre. (c) The provisions of this sub-section shall apply to a person who has claimed any deduction under any section (other than section 14992) included in Chapter VIII-C or section 46. (d) The provisions of this sub-section shall not apply to— (i) a person, who has exercised the option under section 203(5) or section 204(2); (ii) a person, whose income-tax payable in respect of the total income of such person is computed under section 202(1); (iii) an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person referred to in section 2(77)(g), if the adjusted total income of such person does not exceed twenty lakh rupees; or (iv) any specified fund referred to in Schedule VI (Note 1).
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Checked against the Income-tax Act, 2025 as amended by the Finance Act, 2026 on 24 October 2026. Official text of the Act
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Meet the expert
CS Prashant Kumar
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.