Many non-resident investors reach India through traditional mutual funds. Under that route, Indian tax may be withheld first, with relief claimed later through the India–Australia Double Taxation Avoidance Agreement (DTAA) and foreign tax offsets — a process that carries documentation and cash-flow friction. The GIFT City structure is designed to reduce that friction at source.
The relevant provision is Section 10(4D) of the Income-tax Act, 1961. It grants an exemption to a “specified fund” — a Category III AIF located in the IFSC, of which all units (other than those held by the sponsor or manager) are held by non-residents — a condition IG Funds satisfies as a non-resident unitholder.
The exemption applies to the fund's income from:
- the transfer of securities (other than shares in a company resident in India);
- securities issued by a non-resident, where that income does not otherwise accrue or arise in India; and
- certain securitisation-trust income — to the extent attributable to units held by non-residents.
Two related provisions complete the picture: Section 10(23FBC) exempts unitholders on income received from such a fund and on the transfer of its units, and no Indian tax is required to be withheld on income that is exempt under Section 10(4D). Eligible non-resident investors may also be relieved of the requirement to obtain an Indian PAN or file an Indian return.
The practical effect: less focus on recovering taxes through treaty mechanisms, more focus on investing.
Investor-level tax obligations, including Australian tax on foreign income and capital gains, continue to apply. This is general information, not tax advice; investors should obtain independent, personalised tax advice. No particular tax outcome is guaranteed.
