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 2022 cap, this was meaningful news.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
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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See Also
Frequently Asked Questions
Can resident Indians invest in GIFT City funds through LRS and what is the annual remittance limit?+
Yes, resident Indians can invest in GIFT City funds through the Liberalised Remittance Scheme (LRS). The overall LRS cap is $250,000 per financial year, and GIFT City fund investments count toward this limit. The investment is made by remitting USD to the fund's IFSC account, which triggers 20% TCS on remittance above ₹10 lakh.
What regulatory framework governs GIFT City funds and how is it different from SEBI-regulated mutual funds?+
GIFT City funds are regulated by IFSCA under the IFSCA (Fund Management) Regulations, 2022, not SEBI. This is significant because while SEBI-regulated overseas mutual funds are 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.
What is the tax holiday period for GIFT City funds and how are investor returns taxed?+
GIFT City funds benefit from a 10-year tax holiday under IFSCA — meaning no tax on fund income or capital gains during this period. For investors, capital gains on redemption are taxed as capital gains (LTCG if held >24 months for unlisted fund units; STCG at slab rates if shorter). GIFT City fund investments must be disclosed under Schedule FA in ITR-2.
What types of GIFT City fund structures can resident Indian investors access?+
Resident Indian investors can access feeder funds into global indices (such as S&P 500 and Nasdaq 100 as mentioned in the article), AIFs in GIFT City investing globally (with minimum ticket typically $75,000–$150,000), and Fund of Funds structures.
What is required for tax reporting when a resident Indian invests in GIFT City funds?+
GIFT City fund investments are classified as foreign assets and require Schedule FA disclosure in ITR-2 for annual reporting purposes. Additionally, the initial remittance triggers 20% TCS on amounts above ₹10 lakh under the LRS framework.
How did PPFAS GIFT City feeder funds address the mutual fund LRS cap limitation from 2022?+
PPFAS Asset Management launched feeder funds in GIFT City (May 2026) investing in S&P 500 and Nasdaq 100 indices. Since GIFT City funds operate under IFSCA regulations rather than SEBI's framework and are exempt from the 2022 RBI moratorium on additional overseas mutual fund investments, this provided resident Indian investors a domestic route to indexed US equity exposure despite the LRS cap constraint on SEBI-regulated overseas funds.
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