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How can NRIs invest in GIFT City
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Understand eligibility criteria and ways for an NRI to invest in GIFT City
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Understand taxation on investments in GIFT City for NRIs
The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of December 15, 2024
For Non-Resident Indians (NRIs) seeking to diversify their portfolio and explore new investment opportunities, GIFT City presents a unique and compelling proposition. This article helps you understand the different investment avenues and financing options available to you as an NRI at GIFT City.
What is GIFT City?
GIFT City is India's first international financial center. It offers numerous tax benefits to businesses and individuals, including those living outside India (NRIs), due to its special economic zone status.
These include*:
- Exemption on capital gains tax for NRIs from the sale of certain securities traded on IFSC exchanges
- Concessional tax rate of 10% plus applicable surcharge and cess on dividends received from IFSC units
- Concessional tax rate on interest income for NRIs for specific long-term or rupee-denominated bonds subject to:
- Bonds issued before July 1, 2023, are taxed at 4%
- Bonds issued on or after July 1, 2023, are taxed at 9%
*(Source: Section 10(4D) of the Income Tax Act, 1961)
In 2018, the Reserve Bank of India (RBI) designated the International Financial Services Centre (IFSC) as a Non-Resident zone. IFSC operates entirely in foreign currencies, offering a secure and stable environment for your investments.
You can also open an offshore IBU account in GIFT City in various foreign currencies. Leading banks like ICICI Bank IBU also offers deposits in:
- US Dollars (USD)
- British Pounds Sterling (GBP)
- Euros (EUR)
- Canadian Dollars (CAD)
- United Arab Emirates Dirhams (AED)
- Australian Dollars (AUD)
- Singapore Dollars (SGD) and
- Hong Kong Dollars (HKD)
GIFT City is governed by the International Financial Services Centres Authority (IFSCA). It houses two main exchanges which offer trading in equities, derivatives, and debt instruments. These include:
- India INX (India International Exchange) and
- National Stock Exchange International Financial Services Centre (NSE IFSC)
Additionally, GIFT City is home to:
- India International Bullion Exchange (IIBX) for metal trading and
- India Energy Exchange (IEX) for power trading
Who can invest in GIFT City?
Both individuals and corporates are eligible to invest in GIFT City, subject to specific requirements and regulations. The eligibility criteria for investing in GIFT City depend on whether you are a resident of India or an NRI.
- Non-Resident Indians (NRIs): NRIs can invest freely in GIFT City, subject to FEMA regulations which restrict investment in certain sectors. For more details, please click here
- Residents of India: Resident individuals can invest up to USD 250,000 per financial year in securities listed on IFSC exchanges and other permissible instruments under the Liberalised Remittance Scheme (LRS).
Did you know?
GIFT City allows both NRIs and foreign nationals to invest in its diverse financial products, positioning itself as a global investment hub.
Investment avenues in GIFT City
1. Banking accounts: NRIs can open Global Savings Accounts in various foreign currencies at GIFT City, including USD, GBP, EUR, CAD, AED, AUD, SGD, and HKD. These accounts can be held in single or multiple currencies, with options for joint account holders and nomination facilities. NRIs can park their surplus funds in these accounts and earn competitive interest rates in their chosen currency.
2. Offshore deposits: You can invest your surplus funds in offshore deposits. Interest earned on these deposits is exempt from Indian taxes under the IFSC framework. Opening an offshore deposit account at GIFT inter-business unit (IBU) as an NRI or foreign national provides you with the flexibility to make deposits in major currencies ranging from one month to five years. Please note this may vary from bank to bank. Banks like ICICI Bank allows you to make deposits with tenure ranging from 7 days to 39 months in various currencies such as USD, GBP, EUR, CAD, AED, AUD, SGD, and HKD.
Did you know?
In comparison to Foreign Currency Non-Resident (FCNR) deposits in India, term deposits within GIFT city offers shorter tenures and no interest penalties for early withdrawal.
You might want to should speak to your banking relationship manager to know more about the details.
3. Loans: The financial institutions in GIFT City IFSC offer flexible options to avail loans for various purposes including home purchase, business expansion or financing education. Please note that the specific terms and conditions of the loans may vary between banks and financial institutions, so you need to review and compare the offerings to find the most suitable loan option.
Leading banks like ICICI Bank allow GIFT city investors to avail loans against deposits. These can be availed in India, Bahrain, or Singapore. The loan can be availed against:
- FCNR (Foreign Currency Non-Resident) Deposits or NRE (Non-Resident External) Deposits
- Deposits with various international branches of the Bank
- ICICI Bank IBU GIFT City Deposits
GIFT city Loan against deposit
4. Alternative Investment Funds (AIFs): GIFT City investors can also explore AIFs which are privately financed investment vehicles that assemble capital from individual investors. AIFs require a minimum investment* of USD 1,50,000 with a lock-in period of three years. AIF investments are further categorised into:
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Category I | Funds in this category invest in start-ups, early-stage ventures, social venture funds and SME funds, infrastructure funds. |
|---|---|
| Category II | Funds in this category incorporate private equity funds and debt funds. |
| Category III | Funds in this category invest in hedge funds, funds that trade to make short-term gains, open-ended funds and funds that don't have any special incentives or discounts. |
*Securities and Exchange Board of India (Alternative Investment Funds) regulations, 2012 - 21 May, 2012
5. Portfolio Management Service (PMS): NRIs investing in GIFT City can also explore PMS, a tailored investing option for those looking to invest in debt, stock, fixed income, money market instruments and other securities through a designated fund manager. NRIs can claim tax exemption on income earned through such investments (provided the investments are made in securities outside India).
Typically, the PMS operating within GIFT City IFSC have the authorisation to invest in the following types of securities:
- Financial assets/securities traded on the stock exchange at GIFT City.
- Financial instruments/securities issued by companies that are registered GIFT City.
- Financial instruments/securities issued by companies incorporated in India or foreign jurisdictions
You should speak to your relationship manager to know more details for PMS and AIF investments.
Taxation on investments in GIFT City for NRI
As an NRI investor, you don't have to file a tax return if your earnings come only from investments in category I or category II AIFs located in an IFSC. If the AIFs have already deducted tax on the distribution they make to you as a non-resident investor, you are eligible for this exemption. It's important to note that you are also exempted from the requirement of obtaining a PAN (Permanent Account Number) in India. This exemption simplifies your tax and administrative obligations as a non-resident investor in these specific circumstances.
As a non-resident investor in a Category III AIF, you can avail tax exemptions on the following types of income attributable to you:
- You are exempt from tax on income earned from the transfer of any securities, such as derivatives, debt securities, and offshore securities (excluding shares in an Indian resident company).
- Income derived from securities issued by a non-resident (excluding a Permanent Establishment), which does not accrue or arise in India, is also tax-exempt for you.
- If you earn income from a securitisation trust that falls under the "profits and gains of business or profession" category, it is exempt from tax.
- Additionally, if you transfer specified securities listed on a recognised stock exchange located in an IFSC, you are not required to pay taxes as long as the consideration for the transaction is in convertible foreign exchange.
Investors who are residents of countries where India has a Double Taxation Avoidance Agreement (DTAA) can avail tax benefits. To know more about which all countries India has DTAA with, click here.
Conclusion
As an NRI, if you meet the eligibility criteria, including NRI status, KYC compliance, and having an NRE or NRO bank account, you are eligible for GIFT City investment in India. You should seek guidance and investment advice from a financial advisor, investment advice, or assistance to ensure compliance with all applicable rules and regulations.
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Disclaimer:
The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision. Terms and conditions of ICICI Bank and third parties apply. ICICI Bank is not responsible for third party services. Nothing contained herein shall constitute or be deemed to constitute an advice, invitation or solicitation to avail any products/ services of third parties.
