GIFT City IFSC Section 10(4D), the 2026 state of play.

Section 10(4D) of the Income Tax Act provides for exemption of specified income of certain funds operating in IFSC. Scope:

• Fund must be a specified Category III AIF set up at IFSC under IFSCA (International Financial Services Centres Authority) regulations.
• Fund must be a Specified Fund under Section 10(4D) read with Rule 21AJ.
• Specified income types eligible for exemption: capital gains on specified securities, interest, dividend, portfolio management income earned by the Specified Fund.
• Income earned from investments in Indian or foreign securities, provided held at IFSC level in the Specified Fund.

Combined with Section 80LA (100% tax holiday for IFSC units for 10 consecutive years out of 15), GIFT City Specified Funds can effectively deliver 0% Indian tax on fund-level qualifying income.

Compare to a Mumbai-based Category III AIF (not in IFSC): taxed at the fund level at MMR (~42.7% including surcharge and cess) on specified income. The GIFT City delta is 40+ percentage points on fund-level tax drag. This is why Category III managers have migrated to GIFT City.

Section 10(4F) exempts non-resident unit holders of IFSC Specified Funds on specified income types:

• Non-resident LP in GIFT City AIF Category I/II/III: income distributed by the Specified Fund that is attributable to Section 10(4D)-exempt income is also exempt in the hands of the non-resident unit holder.
• Capital gains on redemption of units: exempt for non-resident unit holders.

This means for foreign LPs investing into India via a GIFT City AIF, the end-to-end effective tax can be near 0% (0% at fund level under 10(4D) + 80LA; 0% at LP level under 10(4F)). Transformational for cross-border fund structures.

Compare to foreign LP investing in a Mumbai Category III AIF: 42.7% at fund level + further tax at LP level depending on jurisdiction. GIFT City is materially better.

Any Category III AIF at GIFT City needs to be managed by a licensed FME (Fund Management Entity) under IFSCA Fund Management Regulations. Three license categories:

• Authorised FME: for Category III AIFs managing restricted investor base. Capital requirement + fit-and-proper tests.
• Registered FME (Non-Retail): broader scope, managing restricted-investor Category I/II/III.
• Registered FME (Retail): retail-eligible funds, higher capital + governance requirements.

Setup timeline: 90-180 days from first IFSCA application to FME licence + AIF registration + first LP close. Fast by Indian regulatory standards.

Substance requirements: office space at GIFT City (physical presence; can start with managed co-working facility), key management personnel appropriately resident, operational expenditure in IFSC, audited financial statements.

Through 2024-2026, Section 10(4D) scope has expanded via budget amendments and IFSCA circulars:

• Specified securities list expanded to include additional categories of fixed income, equity derivatives, and global securities.
• Fund-of-funds structures at GIFT City more clearly recognised, enabling multi-manager vehicles with pass-through 10(4D) benefit.
• Family office variants at GIFT City: specific FME category for Single Family Office (SFO) and Multi-Family Office (MFO) structures.
• Retail fund products: Retail FME license allows GIFT City funds to offer retail-eligible products, expanding addressable market.
• Portfolio Management Services (PMS) at GIFT City: separate IFSCA regulations enable PMS structures with specified tax benefits.
• Fund administrator ecosystem: licensed fund administrators (Apex Group, SS&C, local Indian equivalents) now operating at IFSC, reducing operational friction for new funds.

• India-focused fund managers running Category III (long-short, hedge, derivatives): biggest beneficiary. 42.7% MMR drag replaced by near-zero at fund level.
• Pan-Asia or regional funds investing into India: GIFT City instead of Singapore VCC or Mauritius GBL. Fewer substance frictions, Indian-regulator-friendly, treaty-ready.
• Foreign LPs seeking India exposure: GIFT City AIF structure instead of direct FDI or Mauritius route. Section 10(4F) + 10(4D) delivers clean tax position.
• Family offices consolidating cross-border holdings: GIFT City SFO/MFO structure for UHNI families with multi-jurisdiction exposure.
• PE/VC fund managers planning next fund: Fund III+ structures at GIFT City increasingly common for India-focused managers.
• Specific sector funds (infrastructure, climate, deeptech): IFSCA has specific carve-outs for sector funds that may qualify additional benefits.

Last updated: 2026-10-09.