GIFT City: India’s Emerging Financial Hub for NRIs

India has transformed significantly since the 20th century. Earlier, India lacked financial hubs and global trade centers to compete with the world-class economic landscape. However, with the growing evolution of financial structure, India is proving itself to be worthy of competing among the global financial leaders.

In an attempt to transform and boost the financial landscape of India, a new era in Indian finance has been unlocked at the heart of Gujarat International Finance Tec-City (GIFT City). As India’s first operational International Financial Service Centre, GIFT City offers a robust global financial ecosystem for Non-Resident Indians. It is designed to combine international flexibility with the Indian regulatory and security framework, making it a unique financial jurisdiction that enables seamless cross-border investments.

Why was GIFT City created?

Gujarat International Financial Tec-City was created to address gaps in the financial sector by enabling seamless financial services with global reach. It is designed to strengthen the domestic economy, which was losing billions of dollars to foreign jurisdictions in areas like investment banking, asset management, and currency trading.

GIFT City aims to offer a globally competitive ecosystem within India that would match international standards in infrastructure, regulation, and ease of doing business. The idea for this global financial hub emerged after policymakers in the early 2000s identified the outflow of capital to foreign institutions. To reclaim this, the Government of Gujarat proposed the idea of GIFT City in 2007, which was later supported by the Central Government. In 2015, GIFT City was formally notified as India’s first IFSC under the SEZ Act.

How NRIs can benefit from GIFT City

Unlike other financial hubs in India, GIFT City operates under a specialized legal framework supported by a combined influence of legalization by the Foreign Exchange Management Act, 1999 (FEMA), the Income Tax Act, and the International Financial Service Centres Authority Act (IFSCA Act). These mixed regulatory frameworks bring lots of opportunities for NRIs.

Some of the advantages for NRIs are given below:

•  The ability to invest and transact in foreign currencies without FEMA restrictions
•  Exemptions from key taxations rules applicable in India, including lower or zero withholding tax on certain investments
•  A streamlined regulatory environment under the IFSCA, replacing otherwise fragmented oversight by multiple agencies like SEBI, RBI, and IRDAI.

How GIFT City Addresses Currency Risks and Repatriation Issues

One of the biggest concerns that NRIs face is rupee depreciation, making long-term investments or capital gains vulnerable to currency erosion. Annually, the rupee depreciates around 3% to 5% against the US dollar.

The issue of NRIs losing their investment value in India is made worse by the fact that all of their income is calculated and taxed in Indian rupees (INR) in mainland India. This means that if the rupee depreciates, any notional gain made by NRIs will be lost due to forex conversion losses during repatriation, in addition to taxes.

However, GIFT City eliminates the forex conversation losses by operating entirely in foreign currency. It allows NRIs to transact, hold, and repatriate funds in foreign currency through IFSC-registered institutions.

Income earned from IFSC-based investments—including interest and capital gains from IFSC-listed securities—can be repatriated in foreign currencies, bypassing the need to convert to INR. This eventually reduces the currency risks and ensures that an NRI’s after-tax value is preserved. Certain securities traded in IFSC exchanges are even exempt from capital gains tax, further boosting the post-tax returns.

A Game-Changer for NRI Wealth Management

In India, traditional investments like real estate and bank deposits for NRIs often come with hefty tax and compliance burdens. Meanwhile, GIFT City eliminates all these by providing alternatives through various financial instruments. The following are the alternatives:

•   IFSC Banking Units (IBUs): NRIs can hold foreign currency deposits that are fully exempt from income tax under Section 10 of the Income-tax Act,1961.
• Family Investment Funds (FIFs): This investment vehicle was introduced in 2022. It allows NRIs and their families to pool global and Indian assets under one legal framework, with a minimum requirement of just $150,000.
• IFSC Exchange: IFSC exchange introduce platforms like GIFT Nifty, allowing NRIs to invest in Indian equities and debt instruments in foreign currency, benefiting from currency erosion and capital gains exemptions under Section 47(viiab)

The future of NRI Investments in India

GIFT City is more than just a tax-friendly financial institution - it is India’s answer to a pathway for globalizing the financial landscape, like Singapore and Dubai. By operating in a regulatory-safe, tax-efficient, and currency-flexible investment environment, it provides NRIs with numerous financial opportunities, from interest income to capital gains and from family offices to public market plays. All these investment instruments focus on enhancing your growth by maintaining optimal wealth management along with India’s growing economy.