Budget 2026 Watch: GIFT City Wants Relief on Overseas Investment Taxes

As per Moneycontrol news reports, the regulator of GIFT City (IFSCA) has recommended clearer tax rules for overseas investments ahead of the Union Budget 2026. The proposal focuses on outbound investments made by funds based in GIFT City into foreign markets. While such investments are already allowed under existing regulations, there is no dedicated tax framework to support them.

This gap has become a key hurdle for the growth of GIFT City as a global financial hub.

The Tax Challenge for Global Funds

At present, outbound investments from GIFT City can attract taxes of over 40%. This happens mainly because tax can be triggered during frequent buying and selling of securities within a fund. This process, often referred to as churning, leads to tax costs even before profits are passed on to investors.

For large global funds, this makes operating from GIFT City far less attractive. In comparison, financial centres such as Singapore and Hong Kong tax investors only when income is distributed, not during routine trading at the fund level.

Why Tax Clarity is Important

A clear outbound investment tax regime would bring predictability and tax neutrality. Under such a system, funds would not face repeated tax hits while managing portfolios. Tax would apply only when returns are paid to investors.

This change could help GIFT City compete on equal terms with established global hubs. Many international funds prefer setting up regional trading desks in places where tax treatment is simple and predictable. Without similar clarity, GIFT City risks losing out on these opportunities.

Current Role of GIFT City

GIFT City has already attracted global interest, especially for India-focused investments. It is widely used for debt transactions such as external commercial borrowings and non-convertible debentures. Debt listings have grown sharply, and several funds have launched investment vehicles from the centre.

However, most of this activity is still limited in scope. A clearer tax framework could encourage more diverse and larger overseas investment strategies to be managed from GIFT City.

What Could Change After Budget 2026?

If the government accepts the recommendation, GIFT City could see stronger participation from global funds. Simpler tax rules may help it emerge as a true alternative to other Asian financial hubs.

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Conclusion

Clear outbound investment tax rules could be a turning point for GIFT City. By reducing uncertainty and high tax costs, the centre may become more attractive to global funds looking for a stable base in India.

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