GIFT City IFSC: An Emerging Alternative Amid GAAR (General Anti-Avoidance Rule), JAAR (Judicial Anti-Avoidance Rule), and Tax Treaty Uncertainty

The Indian tax landscape for foreign investors has undergone a significant shift following the Supreme Court’s ruling in the Tiger Global case. The judgment reaffirmed the authority of Indian tax authorities to deny tax treaty benefits by invoking judicial anti-avoidance principles, even where formal documentation such as Tax Residency Certificates (TRCs) is in place.

This ruling has heightened concerns among global investors who rely on bilateral tax treaties to achieve tax efficiency when investing into India. As treaty-based structures face increased scrutiny under GAAR and JAAR the need for a more predictable and potentially litigation-resistant investment platform has become critical. In this context, in our view, GIFT City’s International Financial Services Centre (IFSC) has emerged as a strategically favourable jurisdiction.

Impact of the Tiger Global Judgment on Treaty-Based Investment Structures

Traditionally, foreign investments into India have been routed through jurisdictions such as Mauritius, Singapore, and Luxembourg, primarily to access tax treaty benefits. However, the Tiger Global ruling reinforces a key risk: tax treaties, by themselves, no longer guarantee certainty.

Indian tax authorities now have stronger judicial backing to examine the commercial substance of transactions and deny treaty benefits where arrangements are perceived to be primarily tax-driven. This may create uncertainty for investors, increases the likelihood of disputes, and raises the overall cost of compliance.

Why GIFT City IFSC May Offer Better Tax Certainty

GIFT City IFSC distinguishes itself from traditional offshore jurisdictions by offering tax incentives that are embedded directly in Indian domestic tax law, rather than being derived from bilateral treaties.

For investors and fund managers, this has several important implications:

• Tax incentives under domestic tax law are not dependent on treaty eligibility, limitation of benefits (LOB) clauses, or subjective substance tests.
• May reduce exposure to GAAR, JAAR, and treaty interpretation disputes.
• Greater predictability, as incentives are clearly codified in statute and supported by a dedicated regulatory framework.

These statutory changes may potentially make GIFT City IFSC a more resilient jurisdiction for long-term investment into India, in our view.

Union Budget 2026: Extension of IFSC Tax Holiday

The Union Budget 2026 proposals, subject to enactment and applicable conditions, have further strengthened the investment attractiveness of GIFT City by extending the tax holiday available to IFSC units. Eligible entities may be entitled to avail a 100% income-tax exemption for 20 years, an increase from the earlier 10-year period.

Upon completion of the tax holiday, IFSC entities are subject to a concessional flat corporate tax rate of 15%, ensuring continued competitiveness even in the post-exemption phase. This policy move underscores the Government’s commitment to positioning GIFT City as a globally competitive financial centre.

Understanding GIFT City and the IFSC Framework

GIFT City (Gujarat International Finance Tec-City) is India’s flagship international financial hub, designed to attract global capital and promote cross-border financial services. The IFSC within GIFT City operates as a deemed offshore jurisdiction for certain regulatory and tax purposes, where financial transactions with non-resident clients are treated as occurring outside India.

The IFSC ecosystem is regulated by the International Financial Services Centres Authority (IFSCA), a unified regulator overseeing banking, capital markets, insurance, and fund management activities. This integrated regulatory approach simplifies compliance, enhances regulatory clarity, and improves ease of doing business for global investors.

Growing Fund Activity in GIFT City IFSC

GIFT City’s rapid evolution as a fund domicile is reflected in its expanding ecosystem:

• 194 Fund Management Entities (FMEs) registered with IFSCA.
• 310 funds and schemes had received approvals.
• Aggregate commitments from these funds/schemes exceeded USD 26 billion.

Source: IFSCA Bulletin — Jul–Sep 2025

These trends demonstrate a clear shift in investor preference towards GIFT City IFSC, particularly as treaty-based structures face growing uncertainty.

Anis Bohra

Designated Partner, Alchemy Investment Management LLP

Disclaimer: This document is for informational and educational purposes only and does not constitute legal, tax, regulatory, or investment advice. The tax implications discussed are based on prevailing laws, judicial precedents, and policy announcements as on the date hereof and are subject to change. The applicability of GAAR, tax incentives, or exemptions is fact-specific and may vary based on individual circumstances. Readers are advised to consult their independent legal and tax advisors before taking any decision.