A client in Dubai once asked us a question that stumped his bank relationship manager: "If GIFT City is in Gujarat, why do you say FEMA doesn't apply there?"
The banker couldn't answer. And honestly, this confusion exists because GIFT City operates on a legal principle that sounds contradictory.
It's physically located in India, but treated as a foreign territory under India's foreign exchange laws.
This single distinction changes everything about how NRIs can invest, repatriate, and manage their money.
It removes limits that frustrate you with regular NRI accounts. It simplifies compliance that makes mainland investments complicated. And it opens doors that FEMA regulations normally keep closed.
At Belong, we help thousands of NRIs navigate exactly these questions. Our WhatsApp community debates FEMA nuances daily.
The app simplifies what would otherwise require a CA and a lawyer to decode.
This guide explains exactly how FEMA treats GIFT City differently, and what that means for your money.
The Core Principle: GIFT City is "Outside India" Under FEMA
Here's the legal foundation you need to understand.
Under Section 2(v) of the Foreign Exchange Management Act, 1999, a "person resident in India" is someone who has stayed in India for more than 182 days in the preceding financial year.
Anyone else is a "person resident outside India."
Now here's where it gets interesting.
Any entity set up in GIFT City IFSC is treated as a "person resident outside India" for FEMA purposes. This includes banks, mutual funds, insurance companies, and other financial institutions operating there.
According to IndusLaw's analysis, "a unit in the GIFT IFSC will be treated as a non-resident for FEMA purposes." This means any investment made by a person resident outside India in a GIFT City unit doesn't attract FEMA provisions.
RBI formally codified this in October 2025 through the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Seventh Amendment) Regulations, 2025. This amendment officially defines IFSC accounts as equivalent to foreign currency accounts "outside India" under FEMA.
👉 Tip: When any financial advisor tells you GIFT City investments are "like investing abroad from India," they're legally correct. FEMA treats it exactly that way.
What This Means for NRI Investments
If you're an NRI, the FEMA treatment of GIFT City delivers three major benefits you don't get with regular Indian investments.
No Repatriation Limits
With an NRO account in mainland India, you can repatriate only USD 1 million per financial year. You need Form 15CA/15CB certification.
You need to prove tax compliance. The process involves paperwork and delays.
With GIFT City, there's no such ceiling. Your capital, your returns, your dividends, everything is fully repatriable without limits.
Since you're investing in foreign currency with an entity treated as non-resident, the repatriation rules that apply to domestic investments don't apply here.
No Portfolio Investment Scheme (PIS) Requirement
To invest in Indian stocks through a regular demat account, NRIs need PIS approval from RBI.
It's a cumbersome process that involves designating one bank as your PIS bank, maintaining compliance records, and facing trading restrictions.
GIFT City investments don't require PIS. You can trade on India INX and NSE IFSC without this approval because the exchanges are technically offshore under FEMA.
Foreign Currency Throughout
Regular NRI investments require converting your dirhams or dollars to rupees. This exposes you to exchange rate fluctuations and conversion costs.
GIFT City banks let you invest, earn, and withdraw in USD, EUR, GBP, AED, and other foreign currencies. No forced conversion. No currency risk unless you choose to take it.
What This Means for Resident Indians
The FEMA treatment works differently if you're a resident Indian wanting to invest in GIFT City.
You're not exempt from FEMA. Instead, you use a specific route called the Liberalised Remittance Scheme (LRS).
The USD 250,000 Annual Limit
Under LRS, every resident individual can remit up to USD 250,000 per financial year for permitted purposes. Investing in GIFT City falls under "availing financial services or products in an IFSC."
According to RBI's Master Direction on LRS, you can open a Foreign Currency Account with GIFT City banks and use it to access financial products offered in the IFSC.
This USD 250,000 limit is per person, per financial year. A family of four could potentially invest up to USD 1 million collectively.
TCS on Remittances
From April 1, 2025, Tax Collected at Source (TCS) rules apply to LRS remittances.
The first Rs. 10 lakh of remittances per financial year is TCS-free. Beyond that, 20% TCS applies (5% for education-related remittances funded by loans).
This TCS isn't an additional tax. It's collected upfront and adjusted against your regular income tax liability. You can claim it back when filing returns.
The Reporting Requirement
Resident Indians must report GIFT City investments as foreign assets in their income tax returns. Schedule FA (Foreign Assets) applies because FEMA treats these as offshore investments.
👉 Tip: Keep meticulous records of all LRS remittances. Your bank will report them to RBI, and any mismatch with your tax filings can trigger scrutiny.
FEMA vs. GIFT City: A Direct Comparison
Let's compare how the same investment is treated under FEMA in mainland India versus GIFT City.
Aspect | Mainland India | GIFT City IFSC |
|---|---|---|
Currency | INR only | Foreign currencies (USD, EUR, etc.) |
Repatriation limit (NRO) | USD 1 million/year | No limit |
PIS requirement for stocks | Yes | No |
AD Bank routing | Mandatory | Not required |
Transaction caps | Various limits apply | Generally no caps |
Regulatory approvals | Multiple (RBI/SEBI) | Single window (IFSCA) |
This table explains why many NRIs find GIFT City investments simpler than traditional routes.
How FEMA Treats Different GIFT City Products
Let's examine specific investment products and their FEMA treatment.
USD Fixed Deposits
When you open a USD fixed deposit at a GIFT City IBU (IFSC Banking Unit), FEMA treats it as a deposit with an offshore bank.
For NRIs, this means full repatriation of principal and interest without any ceiling. No Form 15CA/15CB required for withdrawals.
For resident Indians, the initial deposit comes from your LRS limit. Subsequent interest and principal can be freely used within GIFT City or repatriated under the same LRS framework.
Compare current rates through our NRI FD rates tool.
Mutual Funds
GIFT City mutual funds are domiciled outside the FEMA perimeter. Fund houses like HDFC, SBI, Mirae, and others have launched USD-denominated schemes.
For NRIs, investing doesn't require any FEMA compliance beyond standard KYC. Returns are fully repatriable.
For resident Indians, the investment comes from LRS. But here's an advantage: these funds can invest globally without SEBI's overseas investment limits that apply to domestic mutual funds.
Explore options through our GIFT City mutual funds tool.
Alternative Investment Funds (AIFs)
GIFT City AIFs accept investments in foreign currency from both NRIs and resident Indians (through LRS).
FEMA's Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) routes don't apply to investments in GIFT City AIFs. Instead, IFSCA's fund management regulations govern them.
The minimum investment threshold dropped from USD 150,000 to USD 75,000 in February 2025, making AIFs more accessible.
Browse options through our GIFT City AIFs tool.
👉 Tip: Unlike mainland AIFs which have complex FEMA compliance for NRI investors, GIFT City AIFs offer a cleaner structure with simpler repatriation.
The AD Bank Difference
One of the biggest FEMA simplifications in GIFT City involves Authorised Dealer (AD) banks.
In mainland India, all foreign exchange transactions must route through AD Category-I banks. These banks act as gatekeepers, verifying compliance with FEMA at every step.
According to Cyril Amarchand Mangaldas's analysis, "the domestic Indian regime mandates that all cross-border transactions be routed through an Authorised Dealer Category-I (AD-I) bank, which increases bank-led dependency."
GIFT City operates differently. Payment Service Providers and banking units in IFSC benefit from exemptions under FEMA regulations. They can process cross-border transactions with "greater flexibility in structuring" and without the mandatory AD routing.
This reduces friction. It speeds up transactions. And it lowers costs.
NRE, NRO, FCNR vs. GIFT City Accounts
NRIs typically manage their India money through three account types. Let's see how GIFT City accounts compare under FEMA.
NRE (Non-Resident External) Account
Funded by foreign earnings. Fully repatriable. Tax-free interest. But denominated in rupees, so currency risk applies.
NRO (Non-Resident Ordinary) Account
Holds India-sourced income (rent, dividends, etc.). Repatriation capped at USD 1 million per year. Interest is taxable.
FCNR (Foreign Currency Non-Resident) Account
Term deposits in foreign currency. No currency risk. Fully repatriable. But minimum 1-year tenure and limited flexibility.
GIFT City Global Savings Account
Foreign currency account at an IBU. Similar to FCNR but with more flexibility. No minimum tenure requirements. Can fund investments in GIFT City directly. Interest is tax-free for NRIs.
For a detailed comparison, read our guide on GIFT City vs traditional NRE/NRO investments.
Feature | NRE | NRO | FCNR | GIFT City Account |
|---|---|---|---|---|
Currency | INR | INR | Foreign | Foreign |
Repatriation | Full | USD 1M limit | Full | Full |
Tax on Interest | Tax-free | Taxable | Tax-free | Tax-free (NRIs) |
Minimum Tenure | None | None | 1 year | None |
Currency Risk | Yes | Yes | No | No |
The Repatriation Rules: GIFT City's Biggest Advantage
Let's be specific about repatriation because this is where GIFT City's FEMA treatment delivers the most value.
From NRO Accounts (Mainland India)
Maximum USD 1 million per financial year. Requires Form 15CA (declaration) and Form 15CB (CA certificate for amounts above Rs. 5 lakh). Source of funds must be verified. Applicable taxes must be paid. Bank verification takes 7-15 days typically.
From GIFT City
No annual ceiling. No Form 15CA/15CB requirement for NRIs. Direct SWIFT transfer to your overseas account. Processing typically 2-3 business days.
According to our research, this unlimited repatriation is possible because GIFT City investments are treated as offshore under FEMA. The money was never "in India" from a regulatory perspective.
Understanding the repatriation rules after selling investments helps you plan your exit strategy.
👉 Tip: If you're planning to move large sums back from India, GIFT City's repatriation rules are significantly simpler than NRO account rules.
What About Mutual Funds You Already Own in India?
Here's a scenario many NRIs face: you have mutual funds in India bought when you were a resident. Now you want to know if GIFT City changes anything.
FEMA rules for existing mainland India mutual funds remain unchanged. You'll continue to:
Receive dividends in your NRO account. Pay applicable taxes on gains. Face repatriation limits when moving proceeds abroad.
However, GIFT City mutual funds can be a better option for fresh investments. They offer similar India exposure (through feeder fund structures) with the simpler FEMA treatment.
Some NRIs maintain both. Use existing mainland funds for long-term holdings where repatriation timing doesn't matter. Use GIFT City for new investments where you want flexibility.
Read our comparison of GIFT City mutual funds vs regular Indian mutual funds for detailed analysis.
The LRS Route: How Resident Indians Access GIFT City
If you're a resident Indian reading this, here's your pathway.
Step 1: Open a Foreign Currency Account at a GIFT City IBU
Several banks offer this: ICICI, HDFC, SBI, Axis, Federal Bank, and others. You'll need standard KYC documents plus an LRS declaration.
Step 2: Remit Funds Under LRS
Instruct your domestic bank to transfer rupees, which get converted to foreign currency and credited to your GIFT City account. The bank will collect TCS if you've exceeded Rs. 10 lakh in the financial year.
Step 3: Invest from Your GIFT City Account
Once funds are in your Foreign Currency Account, you can invest in any GIFT City product: FDs, mutual funds, AIFs, insurance, or trading on IFSC exchanges.
Step 4: Maintain Records
Keep all LRS remittance receipts, investment confirmations, and Form A2 declarations. Report the investments in your tax return under Schedule FA.
The beauty of this structure: once money is in GIFT City, subsequent transactions within GIFT City don't need fresh LRS remittances. You can switch between products, reinvest returns, and manage your portfolio freely.
Learn more about how to open an account at GIFT City.
FEMA Compliance: What Can Go Wrong
Despite the simplified structure, FEMA violations can still occur. Here are common pitfalls.
For NRIs
Using GIFT City accounts for transactions that should go through NRO accounts (like receiving rent from Indian property). This is a FEMA violation because the income source is India, not overseas.
For Resident Indians
Exceeding the USD 250,000 LRS limit without RBI approval. Misclassifying the purpose code on Form A2. Failing to report GIFT City investments as foreign assets.
For Both
Investing with unregistered entities claiming GIFT City status. Always verify registration on IFSCA's official directory.
The penalties under FEMA can be severe. Section 13 of FEMA allows penalties up to three times the amount involved in the contravention.
👉 Tip: When in doubt, get a written opinion from a qualified FEMA consultant before proceeding. The cost is minimal compared to potential penalties.
What Happens When You Return to India?
This is a question we get frequently from NRIs planning to return to India.
Your GIFT City Accounts Don't Close
GIFT City accounts are available to both NRIs and resident Indians. When your residential status changes, you don't need to close them. You simply continue as a resident Indian investor.
LRS Limits Apply Going Forward
Fresh investments after becoming resident will come under the USD 250,000 LRS limit. But existing investments can continue.
Tax Treatment Changes
As an NRI, your GIFT City income was likely tax-free in India. Once you become a resident, your global income becomes taxable. However, you may qualify for RNOR (Resident but Not Ordinarily Resident) status for up to two years, which provides transitional benefits.
The Two-Year Window
Many returning NRIs use the RNOR period strategically. GIFT City investments made as an NRI continue with their existing structure. You get time to restructure your portfolio for resident tax treatment.
Read our detailed guide on keeping money in GIFT City when returning.
FEMA and DTAA: The Double Taxation Angle
FEMA and tax laws operate independently, but they intersect for NRIs.
The Double Taxation Avoidance Agreement (DTAA) between India and UAE (or your country of residence) determines which country can tax your income.
Here's where it gets interesting with GIFT City:
Many GIFT City products are structured to provide tax exemptions under Indian law. For example, interest on deposits at IBUs is exempt for non-residents under Section 10(15)(viii) of the Income Tax Act.
Combined with the FEMA treatment that allows full repatriation, GIFT City creates a compelling structure: your money is legally offshore under FEMA, your returns may be tax-exempt under Indian law, and DTAA ensures no double taxation in your resident country.
Of course, you remain subject to tax laws in your country of residence. UAE residents benefit from zero personal income tax. UK or US residents have different obligations.
For detailed analysis, read our guide on DTAA benefits for NRIs.
Practical Scenarios: How FEMA Plays Out
Let's walk through some real scenarios.
Scenario 1: NRI in Dubai with USD 500,000 to invest
Under regular FEMA rules, this NRI would face repatriation limits if investing in mainland India. Any future withdrawal above USD 1 million per year would be blocked.
With GIFT City, the entire amount can be invested in USD fixed deposits or mutual funds. Full repatriation is available anytime without ceiling or Form 15CA/15CB requirements.
Scenario 2: Resident Indian family planning overseas education
A family wants to build a USD education corpus for their child studying in the UK in 3 years.
Under LRS, each parent can remit USD 250,000 per year. They open GIFT City accounts, invest in USD fixed deposits, and accumulate the corpus in dollars. When tuition is due, funds transfer directly to the UK university without currency conversion delays or costs.
Scenario 3: NRI planning to return and start a business
An NRI has USD 2 million in savings and plans to return to India in 2 years to start a company.
Instead of converting everything to INR and facing currency risk, they park funds in a GIFT City account. When they return, they can repatriate in tranches as needed for the business, or keep some funds invested in GIFT City as a foreign asset.
What FEMA Doesn't Exempt in GIFT City
To be clear, GIFT City's FEMA treatment doesn't create a tax haven or regulatory free-for-all.
Indian Tax Laws Still Apply
GIFT City is exempt from certain taxes (GST, STT), but entities remain under the Income Tax Act. Resident Indians are taxed on global income, including GIFT City returns.
IFSCA Regulations Apply
While FEMA is relaxed, IFSCA has its own regulations for investor protection, KYC, AML compliance, and operational standards. These are comparable to global financial center regulations.
Source of Funds Still Matters
You can't use GIFT City to launder money or evade taxes. KYC requirements include source of funds verification. Both IFSCA and domestic authorities can investigate suspicious transactions.
FEMA Still Governs Mainland Transactions
If you want to use GIFT City funds to buy property in mainland India, FEMA rules for such transactions still apply. The exemption is for transactions within GIFT City or repatriation abroad.
The Bottom Line: Why FEMA Treatment Matters for NRIs
Let's summarize why GIFT City's FEMA treatment is significant for NRIs.
Simplicity
One unified regulatory framework (IFSCA) instead of multiple regulators. No PIS requirements. No AD bank dependencies for every transaction.
Flexibility
Full repatriation without annual limits. Foreign currency denomination without forced conversion. Ability to switch between products within GIFT City freely.
Strategic Value
Hedge against rupee depreciation. Build a global portfolio with India exposure. Prepare for return-to-India transitions smoothly.
Cost Efficiency
Reduced compliance costs. Lower transaction friction. No intermediary fees for AD bank routing.
At Belong, we've designed our products specifically to leverage these FEMA advantages. Our mutual fund offerings are structured for NRI convenience. Track India markets through our GIFT Nifty tool.
Take the Next Step
Understanding FEMA is crucial, but the real benefit comes from putting this knowledge to use.
Thousands of NRIs in our WhatsApp community are already investing through GIFT City and navigating these regulations together. Join them to discuss specific scenarios and get practical advice.
Download the Belong app to access USD fixed deposits and mutual funds designed to maximize the FEMA advantages we've discussed.
