Can You Get Tax-Free Returns From a GIFT City Fund?
Quick answer
Sometimes, and only in one situation: you are a non-resident investing in a GIFT IFSC fund that qualifies as a specified fund. Registration in GIFT City does not, by itself, make anyone’s returns tax-free.
A specified fund is a GIFT IFSC Category III fund, retail scheme or ETF that meets the conditions in the Act. The one that matters most to investors: all its units, apart from those of the sponsor or manager, must be held by non-residents. There is a narrow exception for an investor who becomes resident in a later year, as long as such residents hold no more than 5% of the units and the other prescribed conditions are met.
For a unit holder of a specified fund, two things are left out of Indian income: what the fund pays out, and the gain on transferring the units. The fund itself is a separate taxpayer. It pays tax on its Indian income at special rates, for example 10% on income from securities such as Indian dividends and interest.
If the fund admits Indian residents beyond that exception, it is no longer a specified fund. It is then taxed as a trust, like a SEBI Category III fund, and the unit holder exclusion is not available to anyone in it.
Keep in mind: The exclusion depends on the fund keeping its specified fund status throughout. Your own country may still tax what you receive; that is outside Indian law and outside this page.
Non-resident and resident investors compared
| Question | Non-resident in a specified fund | Resident in a GIFT IFSC Category III fund that admits residents |
|---|---|---|
| Is the fund a specified fund? | Yes, if all its conditions are met | No |
| Who pays tax on the fund’s Indian income? | The fund, at the section 210 rates | The trustee, for the investors |
| Is a payout included in the investor’s Indian income? | No | Taxed through the trustee; not separately included |
| Is the gain on redeeming units taxed? | No | Yes, as your own capital gain |
The specified fund’s own rates (section 210)
| Income | Rate |
|---|---|
| Income from securities (for example Indian dividends and interest) | 10% |
| Short-term gains, other than those under section 196 | 30% |
| Short-term gains under section 196 | 20% |
| Long-term gains, other than those under section 198 | 12.5% |
| Long-term gains under section 198, above ₹1,25,000 | 12.5% |
| Other income | Rates in force |
Redeeming units of a fund taxed as a trust
The trustee is taxed on the fund’s income on behalf of the investors. That covers the fund’s income, not the investor’s own gain on the units.
Your units are your own capital asset. Once the fund is not a specified fund, no provision of the Act exempts a resident’s gain on redeeming them, so the general capital gains rules apply: 12.5% plus cess if you held the units for more than 24 months, or your slab rate if not. The ₹1,25,000 allowance does not apply to these units.
Some funds treat redemptions as not taxed again because the trustee has paid tax on the income. The Act contains no provision that gives that result, so this guide and the calculator follow the text.
Legal provisions and technical details
The unit holder exclusion is Schedule VI, Sl. 9. The non-resident condition and its 5% exception are in Note 1(g)(C). The fund’s rates are in section 210.
Schedule VI, Sl. 9: unit holders of a specified fund
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
Schedule VI, Note 1(g)(C): the non-resident condition
[(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
Section 210(1): tax on a specified fund
210. (1) The income-tax payable on the total income of an assessee, being a specified fund or Foreign Institutional Investor, which includes income referred to in column B of the Table below, shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B. TABLE Sl. No. Income Rate of Income-tax payable A B C 1. Income in respect of securities other than units referred to in section 208. (a) 20% in case of Foreign Institutional Investor; (b) 10% in case of specified fund. 2. Short-term capital gains (not being short-term capital gains referred to in section 196) arising from the transfer of such securities. 30% 3. Short-term capital gains referred to in section 196 arising from the transfer of such securities. 20% 4. Long-term capital gains (not being long-term capital gains referred to in section 198 arising from the transfer of such securities). 12.5% 5. Long-term capital gains referred to in section 198 arising from the transfer of such securities which exceeds ₹125000. 12.5% 6. Total income as reduced by income referred to against serial numbers 1 to 5. Rates in force.
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 303(1)(d): trustee as representative assessee
(d) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees;
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 304(1): the representative assessee’s liability
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
Checked against the Income-tax Act, 2025 as amended by the Finance Act, 2026 on 24 October 2026. Official text of the Act
Want to confirm your tax position?
This result is an estimate based on the information provided. Your final tax position may depend on the fund’s legal structure, investment documents, income type and personal circumstances.
Related pages
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.