Schedule VI: Which GIFT IFSC Income Is Exempt for Non-Residents, and on What Conditions

Most published summaries of GIFT IFSC tax benefits describe exemptions that belong to investors rather than to the IFSC unit itself. Under the Income-tax Act, 2025, those investor-side exemptions have been consolidated into a single place: Schedule VI, which operates through section 11 and is titled “Income not to be included in total income of certain eligible persons in International Financial Services Centre or having income therefrom”.

Schedule VI is built as a table. Column B states the income, column C the eligible person, and column D the conditions. Nothing is exempt in the abstract: each row must be matched to a person and to its conditions.

Categories of GIFT IFSC Tax Exemptions

Schedule VI sets out twelve GIFT IFSC tax exemptions across four categories.

Rows 1 to 4 — specified funds. These exempt, in the hands of a “specified fund”:

1. income from the transfer of a capital asset referred to in section 70(1)(r) where the transfer takes place on a recognised stock exchange located in an IFSC;
2. income from the transfer of securities, other than shares in a company resident in India;
3. income from securities issued by a non-resident, where the securities are not issued by a permanent establishment of a non-resident in India; and
4. business income from a securitisation trust.

The conditions are cumulative and structural. Consideration must be paid or payable in convertible foreign exchange (row 1). More importantly, the exemption applies only “to the extent” the income is attributable to units held by non-residents, not being the permanent establishment of a non-resident in India, or to the investment division of an offshore banking unit. The computation is to be made in the prescribed manner.

This attribution rule is the heart of the regime. A fund with resident investors is not disqualified outright, but the exemption tracks the non-resident share of its units.

Rows 5 to 7 — non-resident counterparties and clients. These cover:

• income from non-deliverable forward contracts, offshore derivative instruments or over-the-counter derivatives, and distributions on them, where the contract is entered into with an offshore banking unit of an IFSC or with a foreign portfolio investor that is an IFSC unit, subject to prescribed conditions (row 5);
• royalty or interest on the lease of an aircraft or a ship, where paid by an IFSC unit that commenced operations on or before 31 March 2030 (row 6); and
• income from a portfolio of securities, financial products or funds managed or administered by a portfolio manager on behalf of the non-resident, received in an account maintained with an Offshore Banking Unit in an IFSC, to the extent the income accrues or arises outside India and is not deemed to accrue or arise in India (row 7).

Row 7 is narrower than it first appears. It is an exemption for offshore-sourced income routed through an IFSC account; it does not convert Indian-source income into exempt income.

Rows 8 and 11 — aircraft and ship leasing. Row 8 exempts capital gains on the transfer of equity shares of a domestic company that is an IFSC unit primarily engaged in aircraft or ship leasing, for a non-resident or another IFSC unit, where the company commenced operations on or before 31 March 2030 and the gains fall within the prescribed ten-year windows. Row 11 exempts dividends from such a leasing unit in the hands of an IFSC unit. “Aircraft” and “ship” are defined in Note 3 to include engines and parts.

Rows 9, 10 and 12 — unit holders, relocation and borrowing. Row 9 exempts income accruing to a unit holder of a specified fund, or arising on transfer of units in it. Row 10 exempts capital gains of a non-resident or specified fund on the transfer of shares of an Indian company that were transferred to the resultant fund on relocation, where those gains would not have been taxable had the relocation not occurred (see Article 8). Row 12 exempts interest payable by an IFSC unit on moneys borrowed by it on or after 1 September 2019, in the hands of a non-resident recipient.

Row 12 is commercially important: it is the basis on which offshore lenders are able to lend to IFSC units without an Indian withholding cost, provided the borrowing date condition is met.

The Definition that Controls Rows 1 to 4 and 9

“Specified fund” is defined in Note 1(g). It means, in substance:

• a fund established or incorporated in India as a trust, company, LLP or body corporate, located in an IFSC, which has either a certificate of registration as a Category III Alternative Investment Fund (under the SEBI AIF Regulations, 2012 or the IFSCA Fund Management Regulations) or a certificate as a retail scheme or Exchange Traded Fund satisfying the conditions for such schemes under the IFSCA Fund Management Regulations; and whose units are held by non-residents, subject to carve-outs; or
• the investment division of an offshore banking unit registered as a Category-I foreign portfolio investor, which has commenced operations on or before the specified date and maintains separate accounts as prescribed.

The Finance Act, 2026 amended Note 1(g) in two respects. It restructured the unit-holding condition, so that all units other than those held by a sponsor or manager must be held by non-residents, with an exception where a non-resident unit holder subsequently becomes resident and the units held by such resident holders do not exceed 5% of total units issued, subject to prescribed conditions. It also substituted “2030” for “2025” as the commencement deadline for the investment division of an offshore banking unit, extending the window by five years.

For funds, this means the investor register is a tax document. A change in an investor’s residential status can affect the fund’s own characterisation, and the 5% tolerance is the margin within which that risk is managed.

What is not Exempt?

Schedule VI does not exempt everything a specified fund earns. Income outside its exemptions remains taxable. Section 210 prescribes special tax rates for specified funds and foreign institutional investors, including 10% for specified funds and 20% for foreign institutional investors on income from securities, 30% or 20% on short-term capital gains depending on the applicable provision, and 12.5% on long-term capital gains.

Section 210(2) applies the same attribution rule as Schedule VI: for a specified fund, the provision applies only to income attributable to units held by non-residents who are not permanent establishments in India.

Nor does Schedule VI exempt an IFSC unit’s own business income. That is governed separately by the deduction under section 147 (Article 5).

Practical Consequences

• Identify the row before claiming the benefit. Each row has its own eligible person and conditions. “It is a GIFT City fund” is not a tax analysis.
• Watch the 31 March 2030 dates. Rows 6 and 8, and the definition of the investment division of an offshore banking unit, are keyed to commencement of operations by that date. So is “relocation” under section 70(2).
• Model the attribution rule. For specified funds, the exemption follows the non-resident share of units, computed in the prescribed manner. Fund documentation, transfer restrictions and investor onboarding should reflect this.
• Track residential status changes. After the 2026 amendment, the consequence of a non-resident investor becoming resident is governed by an express carve-out with a 5% ceiling.
• Check the borrowing date. Row 12 applies to moneys borrowed on or after 1 September 2019.

Where a condition is “as may be prescribed”, the operative detail sits in the rules. Claims should be tested against the rules in force for the relevant tax year rather than against the Schedule alone.