In her Union Budget 2025-26 speech on February 1, 2025 Finance Minister Nirmala Sitharaman unveiled a series of incentives and relaxations aimed at enhancing the appeal of the International Financial Services Centre (IFSC) at GIFT City, also known as Gujarat International Finance Tec-City. Located on the banks of the Sabarmati River, between Ahmedabad and Gandhinagar in Gujarat, GIFT City is poised to become a key player in India’s financial ecosystem.
Key Proposals for GIFT City IFSC
Sitharaman announced specific benefits to attract and promote additional activities in the IFSC. These include tax incentives and regulatory relaxations for ship-leasing units, insurance offices, and treasury centers of global companies established within the IFSC. Additionally, the deadline for commencing operations in the IFSC to avail of these benefits has been extended by five years, from March 31, 2025, to March 31, 2030.
"To attract and promote additional activities in the IFSC, I am proposing specific benefits for ship-leasing units, insurance offices, and treasury centers of global companies set up in the IFSC. Further, the cut-off date for commencement in the IFSC has been extended by five years to March 31, 2030," Sitharaman stated during her budget speech.
What is GIFT City?
GIFT City is a sprawling financial and technological hub divided into two primary zones: a Special Economic Zone (SEZ) housing financial institutions and banks, and a non-SEZ area comprising commercial office spaces and residential buildings. According to property consultants, approximately 30% of the total 880-acre area is currently operational, with another 30% reserved for residential projects.
IFSC: A Gateway to Global Financial Services
The IFSC is a jurisdiction designed to provide financial services to both non-residents and residents, as permitted under current regulations, in any currency except the Indian rupee. Over the past few years, the government has introduced several tax concessions to encourage the development of world-class financial infrastructure within the IFSC.
Budget 2025-26: Extending Tax Concessions
To further incentivize operations in the IFSC, Sitharaman proposed extending the sunset dates for various tax concessions until March 2030. These concessions were previously set to expire in March 2024, March 2025, or March 2026. Additionally, the Indian government has introduced several measures in the Union Budget for FY26. These provisions, announced by Finance Minister Nirmala Sitharaman, aim to encourage the relocation of offshore funds, exchange-traded funds (ETFs), and retail investment schemes to GIFT City. The new rules will take effect from April 1, 2026, and apply to the assessment year 2026-27 and beyond.
Expanding Tax Benefits for Offshore Funds and ETFs
Under the existing framework, offshore funds relocating to GIFT City enjoy tax exemptions. The latest budget expands these benefits to include ETFs and retail investment schemes moving from offshore locations such as Singapore and Mauritius. ETFs, which track stock market indices like the Sensex or Nifty, are popular investment vehicles globally. By extending tax exemptions to these funds, the government aims to attract global investment funds to GIFT City, further solidifying its position as a leading financial center.
Tax Relief for Non-Resident Investors (NRIs)
The budget also introduces additional tax relief for non-resident investors (NRIs) using GIFT City. Currently, NRIs investing in Indian markets through derivative trades or participatory notes are exempt from taxation. The government has now extended this benefit to NRIs investing through Foreign Portfolio Investors (FPIs) registered in GIFT City. This move is expected to increase NRI participation in India’s financial markets by making investments more attractive and tax-efficient.
Amendments to Section 10(4E) of the Income Tax Act
To further incentivize financial activities at IFSC, the budget proposes amendments to Section 10(4E) of the Income Tax Act. According to the changes, income earned by non-residents from the transfer of non-deliverable forward contracts, offshore derivative instruments, or over-the-counter derivatives through FPIs based in GIFT City will not be included in total taxable income. This exemption applies under specific conditions, which will be defined through government regulations.
Simplified Safe Harbor Rules
The government has also proposed adjustments to safe harbor rules governing the relocation of investment funds to India. Under the revised provisions, the calculation of resident participation in a fund will now be determined as of April 1 or October 1 of the financial year. These modifications aim to simplify compliance for foreign funds looking to move their operations to GIFT City, making the process more streamlined and investor-friendly.
Positioning GIFT City as a Global Financial Hub
The government has been actively working to establish GIFT City as a leading financial hub, competing with global centers like Dubai and Singapore. Over the years, several policies have been introduced to make GIFT City a favorable destination for international businesses, banks, and investors. By reducing tax liabilities and easing regulatory processes, the government aims to enhance the region’s competitiveness and attract more global players.
Impact on India’s Financial Ecosystem
The extension of tax benefits to ETFs and retail schemes is particularly significant, as it broadens the scope of investment vehicles that can migrate to India. This move is expected to attract a wider range of asset managers and institutional investors, boosting trading volumes and liquidity in domestic markets. Market analysts believe that these changes will strengthen India’s financial ecosystem and align it with global trends, where countries offer tax incentives to attract financial institutions.
Global Firms and Future Prospects
Several global financial firms have already established operations in GIFT City, and the new incentives are likely to increase participation further. The government’s proactive engagement with industry stakeholders and its focus on refining policies demonstrate a structured approach to making GIFT City a preferred destination for international financial activities.
Impact on India’s Financial Ecosystem
The measures announced in the Union Budget 2025-26 are expected to position GIFT City as a preferred investment destination for global companies. By offering tax benefits and regulatory simplifications, the government aims to attract foreign investments, foster innovation, and strengthen India’s position in the international financial services sector.
Expert Opinions on the Budget Proposals
Industry experts believe that the proposed measures will significantly boost investments in GIFT City. Tapan Ray, MD and Group CEO of GIFT City, highlighted the government’s commitment to transforming GIFT City IFSC into a global financial hub.
He stated, "The Union Budget 2025 reinforces the government’s vision of making GIFT City IFSC a competitive and business-friendly destination on the global financial map. The proposed tax incentives and regulatory simplifications will attract global investors, fund managers, and businesses, thereby strengthening India’s financial ecosystem."
In a significant move to promote ship leasing activities at Gujarat’s International Financial Services Centre (IFSC) in GIFT City, the Union Budget 2025-26 has introduced tax exemptions on dividends and capital gains for umbrella entities of special purpose vehicles (SPVs) engaged in ship leasing. This development is expected to position GIFT City as a competitive hub for ship leasing, similar to its success in aircraft leasing.
Tax Benefits for Ship Leasing SPVs
Under the new provisions, dividends and capital gains earned by the parent entity of an SPV involved in ship leasing activities in GIFT City will now be tax-free. Previously, such tax advantages were available only for aircraft leasing activities originating from GIFT City. Experts believe this move will significantly boost ship leasing business in the IFSC.
Rahul Charkha, Partner at Economic Laws Practice, stated, "This will lead to more active ship leasing activities from GIFT City, similar to the growth seen in aircraft leasing." He added that the new tax exemptions will make GIFT City an attractive destination for global ship leasing companies.
Creating a Conducive Environment for Ship Leasing
The International Financial Services Centres Authority (IFSCA) has been actively working to promote GIFT City as a hub for ship leasing. Suresh Swamy, Partner at Price Waterhouse and Co LLP, highlighted the regulator’s efforts, saying, "IFSCA has undertaken several initiatives to create a conducive environment for ship leasing entities and attract global players to set up operations in GIFT City."
To facilitate ship leasing, the parent entity owning the ship must establish an SPV in GIFT IFSC. Each ship is typically placed under a separate SPV to mitigate risks. The leasing business is conducted through these SPVs, ensuring a structured and risk-managed approach.
Ownership Transfer and Tax-Free Capital Gains
Traditionally, when a ship was sold, the SPV owning it had to be shut down to claim a tax holiday on capital gains. However, the new rule simplifies this process. Swamy explained, "Capital gains on the sale of equity shares will now be exempt from taxes. This means ship leasing entities can transfer ownership of equity shares of the SPV without winding it up, while still enjoying tax-free incentives."
Additionally, non-resident investors selling shares of ship-owning companies in the IFSC will also benefit from tax-free capital gains. This provision is expected to attract more foreign investments into the ship leasing sector at GIFT City.
GIFT City’s Growing Presence in Leasing Activities
Until now, GIFT City has seen significant activity in aircraft leasing, with 196 aviation assets leased as of December 2024. In contrast, only 13 ships were leased during the same period. The disparity was largely due to the absence of tax benefits for ship leasing, which were already available for aircraft leasing.
Charkha noted that much of the global ship leasing activity currently occurs in jurisdictions like Singapore and the Marshall Islands, where flagging regulations are more liberal. The new tax exemptions aim to position GIFT City as a competitive alternative to these established hubs.
IFSCA’s Outreach Programs
To further promote ship leasing, the IFSCA has been actively engaging in outreach programs with global companies and jurisdictions. In June 2024, the regulator held discussions with representatives from Greece’s shipping industry, which controls over 20% of the global merchant fleet capacity. These efforts are aimed at creating awareness about the opportunities for setting up ship leasing units in GIFT City.
K. Rajaraman, Chairman of IFSCA, emphasized the importance of these initiatives, stating, "Our outreach programs are designed to showcase GIFT City as a preferred destination for ship leasing and to attract global players to establish their operations here."
Conclusion
The Union Budget 2025-26 emphasized the government’s commitment to transforming GIFT City into a global financial hub. With extended tax concessions, regulatory relaxations, and targeted incentives for key sectors, GIFT City is set to emerge as a competitive and business-friendly destination. These initiatives will not only attract global investors but also play a pivotal role in driving India’s growth in the international financial services arena.
FAQS
Q1. What incentives has Budget 2025-26 introduced for GIFT City IFSC?
Ans. The budget extends tax incentives and regulatory relaxations for ship-leasing units, insurance offices, and treasury centers, with the commencement deadline extended to March 31, 2030.
Q2. How will offshore funds and ETFs benefit from the new budget proposals?
Ans. Offshore funds, ETFs, and retail investment schemes relocating to GIFT City will receive tax exemptions, making it an attractive hub for global investment funds.
Q3. What tax benefits are offered for ship leasing activities in GIFT City?
Ans. Dividends and capital gains for umbrella entities of SPVs engaged in ship leasing will now be tax-free, similar to existing benefits for aircraft leasing.
Q4. How does the amendment to Section 10(4E) of the Income Tax Act impact non-resident investors?
Ans. Non-residents earning income from offshore derivative instruments and other financial transactions through FPIs in GIFT City will be exempt from taxation.
Q5. What measures are being taken to promote GIFT City as a global financial hub?
Ans. The government is introducing tax incentives, regulatory simplifications, and outreach programs to attract global financial firms, ship leasing companies, and offshore funds.
