Union Budget 2026: FM Announces 20 Years Tax Holiday for GIFT City Units

The Union Budget has proposed extending the tax holiday for businesses operating from Gujarat International Finance Tec-City to 20 years, doubling the existing 10-year benefit. 

The proposal applies to units set up in the International Financial Services Centre and will come into force from April 1, once the Finance Bill is passed. 

Updated Tax Structure 

Under the revised framework, eligible units will be allowed a 100% tax deduction for 20 consecutive years out of a total block of 25 years.  

Offshore banking units will also be covered under the same structure. Currently, IFSC units can claim a full tax exemption for 10 years within a 15-year window. 

After the expiry of the tax holiday, business income will be taxed at a flat rate of 15%. This is lower than the corporate tax rates of 25% to 38% that would otherwise apply. Foreign companies operating outside GIFT City continue to face a base tax rate of around 35%. 

Reason for the Extension 

The proposal comes as the existing 10-year tax holiday for several large financial institutions was close to ending. Units set up by banks such as State Bank of India, Bank of Baroda and Yes Bank were nearing the end of their exemption period, raising questions over tax treatment beyond the current framework. 

The Budget has also proposed changes to the tax treatment of inter-group loans and advances routed through treasury centres located in the IFSC. These changes are intended to simplify how such transactions are taxed. 

Current Scale of Operations 

Activity at the IFSC has increased over the past 12 to 18 months, following regulatory changes overseen by the International Financial Services Centres Authority, which was set up in 2019. The regulator has registered more than 1,000 entities across banking, reinsurance, asset management, and aircraft and ship leasing. 

The IFSC currently hosts 35 banks. Banks operating from GIFT City have cumulatively disbursed over $100 billion in foreign-currency loans. Nearly one-third of India’s external commercial borrowing is now initiated through the IFSC. 

Read More: Budget 2026: What Has the Government Announced to Boost Jobs and Workforce Readiness?  

Conclusion 

The proposed extension lengthens the tax window for IFSC units and sets out a clearer tax structure for the long term, as GIFT City continues to handle a growing share of India-linked cross-border financial activity. 

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