GIFT City for Resident Indians: What PPFAS, LRS, and IFSCA Actually Make Possible in 2026

GIFT City for Resident Indians: What PPFAS, LRS, and IFSCA Actually Make Possible in 2026

In May 2026, PPFAS Asset Management launched two funds from its GIFT City operations: a feeder fund into the S&P 500 index and a feeder fund into the Nasdaq 100. For a resident Indian investor who has been waiting for a domestic route to indexed US equity exposure since the mutual fund LRS cap was halted in 2022, this was meaningful news.

GIFT City — Gujarat International Finance Tec-City — is India's IFSC (International Financial Services Centre), regulated by IFSCA (the International Financial Services Centres Authority). Funds domiciled there operate under a different regulatory framework from domestic SEBI-regulated funds. For resident Indian investors, the investment route is the Liberalised Remittance Scheme (LRS), and the mechanics are different from investing in a domestic mutual fund.

What GIFT City Funds Actually Are

An investment fund domiciled in GIFT City is regulated by IFSCA under the IFSCA (Fund Management) Regulations, 2022 — not SEBI. GIFT City is relevant because while the SEBI-regulated equivalent is capped at existing corpus due to the 2022 RBI moratorium on additional overseas MF investments, a GIFT City fund can invest globally without that constraint.

Types of structures resident investors can access: feeder funds into global indices (S&P 500, Nasdaq 100), AIFs in GIFT City investing globally (minimum ticket typically $75,000–$150,000), and Fund of Funds structures.

The LRS Route: What It Means Operationally

When a resident Indian invests in a GIFT City fund, the investment is made by remitting USD to the fund's IFSC account using LRS. The overall LRS cap is $250,000 per financial year — GIFT City investments count toward this limit.

Practical sequence: open a foreign currency account → initiate LRS transfer (triggers 20% TCS on remittance above ₹10 lakh) → funds credited to GIFT City fund → units allotted. Annual reporting: the GIFT City fund investment is a foreign asset — Schedule FA disclosure in ITR-2 is required.

Tax Treatment of GIFT City Fund Returns

Inside the fund: GIFT City funds benefit from a 10-year tax holiday under IFSCA — no tax on fund income or capital gains during this period.

In the investor's hands: Capital gains on redemption taxed as capital gains (LTCG if held >24 months for unlisted fund units; STCG at slab rates if shorter). Dividend/income distributions taxed as income from other sources at slab rates.

Key difference from domestic equity mutual funds: domestic equity MFs have LTCG at 12.5% after 12 months. GIFT City fund units are typically unlisted with the 24-month LTCG threshold — and indexation benefit is available for unlisted units.

Schedule FA: The GIFT City fund investment must be disclosed in Schedule FA as "Foreign Assets" even though GIFT City is in India — IFSC investments made via LRS are treated as foreign investments for disclosure purposes.

CA's Role

Pre-investment: map GIFT City allocation against the client's $250,000 LRS budget accounting for all other LRS uses; confirm TCS implications and Form 26AS tracking; review the fund's offering document.

Annual compliance: Schedule FA in ITR-2 with GIFT City fund holding details; dividend/income distributions in Schedule OS; capital gains on partial redemptions with 24-month threshold.

Exit planning: LTCG qualification requires 24 months (longer than domestic equity funds); indexation benefit available for unlisted units; repatriation through GIFT City fund manager's account.

I'm CA Harun Raaj, Visakhapatnam. If you're considering a GIFT City fund allocation — through PPFAS's new schemes or a GIFT City AIF — LRS budget planning and Schedule FA compliance should be done before the investment, not at ITR time.

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