7 Things Most NRIs Misunderstand About GIFT City Investments

A customer from Dubai once told me: "Ankur, I kept AED 200,000 idle for three years because I thought GIFT City needs at least ₹1 crore to start."

He wasn't alone. 

At Belong, we talk to hundreds of NRIs every month. The same misunderstandings keep surfacing. 

WhatsApp forwards, half-read articles, and well-meaning friends have created a fog around GIFT City.

Some of these myths cost NRIs real money. Others cost them years of missed opportunity.

This guide tackles the seven most common misconceptions we hear. Each one comes from real conversations with NRIs in the UAE, UK, and beyond. 

If you've been sitting on the fence about GIFT City, this might explain why.

Misunderstanding #1: "GIFT City Returns Are Completely Tax-Free"

This is the most expensive mistake we see.

The marketing says "tax-free." And technically, it's true. In India. Capital gains from specified funds under Section 10(4D) of the Income Tax Act are exempt from Indian taxation. 

Interest on foreign currency deposits at GIFT City faces no TDS. No Securities Transaction Tax. No Stamp Duty.

Sounds perfect. Until you remember you're also a tax resident somewhere else.

What actually happens:

For UAE-based NRIs, this is genuinely excellent news. The UAE has no personal income tax. Gains from GIFT City investments are tax-free in India AND tax-free in your country of residence. You keep 100%.

For UK-based NRIs, the picture changes dramatically. 

From 6 April 2025, all foreign income must be reported on your Self Assessment tax return, regardless of amount. 

The previous £2,000 exemption for small foreign income no longer applies (GOV.UK). Since GIFT City investments have zero TDS, you'll likely owe UK tax at your marginal rate. 

A higher-rate taxpayer at 40% pays exactly that.

For US-based NRIs, it gets worse. Most GIFT City mutual funds trigger Passive Foreign Investment Company (PFIC) rules. You face Form 8621 filings and potential taxation on notional unrealized gains.

👉 Tip: Always ask "tax-free where?" before investing. GIFT City's Indian tax benefits are real. But your country of residence has its own rules. UAE residents benefit most. UK and US NRIs need professional tax advice before committing.

The real rule: GIFT City investments are tax-free in India. Your total tax burden depends entirely on where you live.

Misunderstanding #2: "You Need ₹1 Crore to Get Started"

This was true until recently. Not anymore.

For years, GIFT City Alternative Investment Funds (AIFs) required a minimum investment of USD 150,000. That's roughly ₹1.25 crore or AED 550,000. 

For most middle-income NRIs, this put GIFT City out of reach.

Three things changed in 2025:

Change 1: AIF minimums dropped. In February 2025, IFSCA reduced the minimum investment for AIFs from USD 150,000 to USD 75,000. Still substantial, but now accessible to more NRIs.

Change 2: Retail mutual funds launched. In September 2025, Tata Asset Management received IFSCA approval for the Tata India Dynamic Equity Fund at GIFT City. The minimum investment? Just USD 500 (Business Standard). Other AMCs are following.

Change 3: FDs remain affordable. USD Fixed Deposits at GIFT City banks start at USD 500-1,000 depending on the bank. ICICI Bank's IBU allows deposits from 7 days to 39 months.

Here's what this means in practice:

Compare your options using our NRI FD Rates comparison tool.

👉 Tip: If you have USD 500 to spare, you can now invest in GIFT City. Start with FDs to understand the system. Graduate to mutual funds as you get comfortable.

Misunderstanding #3: "My Deposits Are Insured Like NRE FDs"

This is a critical difference that gets buried in fine print.

Your NRE or NRO fixed deposit with any Indian bank is covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). 

If your bank fails, the government-backed insurance protects up to ₹5 lakh (principal plus interest) per depositor per bank.

GIFT City deposits do not have this protection.

The Axis Bank GIFT City FAQ states this explicitly: deposits are "not covered in the RBI Deposit insurance scheme."

Why? GIFT City operates under IFSCA regulations, not RBI. It's designed as an offshore financial centre on Indian soil. 

The trade-off for tax benefits and currency flexibility is different regulatory treatment.

Does this make GIFT City unsafe?

Not necessarily. The banks operating IFSC Banking Units (IBUs) in GIFT City are the same trusted names you know: SBI, HDFC, ICICI, Axis. These parent banks remain under RBI supervision. The risk is the same underlying credit risk of these banks.

But there's no government safety net if something goes catastrophically wrong.

The practical approach:

Many NRIs we work with split their deposits. They keep some money in DICGC-insured NRE FDs for absolute safety. They allocate other funds to GIFT City FDs for tax efficiency and currency protection. The right mix depends on your risk tolerance.

👉 Tip: If deposit insurance matters to you, don't put all your money in GIFT City. Balance between insured NRE FDs and tax-efficient GIFT City FDs based on your comfort level.

Misunderstanding #4: "GIFT City Is Regulated by RBI"

This confusion stems from the fact that RBI-regulated banks operate in GIFT City. But the regulatory framework is different.

The actual structure:

GIFT City's IFSC is regulated by the International Financial Services Centres Authority (IFSCA), established in 2020 under the IFSCA Act, 2019. IFSCA combines the regulatory powers that RBI, SEBI, PFRDA, and IRDA would individually exercise in mainland India.

Think of IFSCA as a unified super-regulator for international financial services. It reports to the central government, not to RBI.

Why this matters:

The regulatory framework is robust but different. Some NRIs worry that "different" means "weaker." In practice, IFSCA has adopted international best practices from Singapore, Dubai, and London. 

The rules are designed for sophisticated cross-border transactions.

However, the regulatory environment is still evolving. IFSCA was established only in 2020. Compare this to Singapore's MAS (60+ years) or Dubai's DFSA (20+ years).

In 2024, IFSCA prohibited investments into certain US-based ETFs, disrupting some investors' portfolio plans (Goodreturns). 

Rules can change. This isn't unique to GIFT City, but the young regulatory environment means more frequent adjustments.

The tax holiday question:

The current tax benefits extend through March 2030 per Union Budget 2025. That's five years of policy certainty. But there's no guarantee beyond that date. Investment decisions spanning decades should factor in this uncertainty.

👉 Tip: GIFT City is well-regulated under IFSCA, not RBI. This isn't a weakness. It's a different framework designed for international finance. But expect regulations to evolve as the ecosystem matures.

Misunderstanding #5: "Repatriation Will Be a Nightmare Like NRE/NRO"

Ask any NRI who has tried moving money out of India. Form 15CA. Form 15CB. Chartered Accountant certificates. Bank documentation. Tax clearances. It can take weeks and cost thousands in professional fees.

GIFT City was specifically designed to solve this problem.

Since GIFT City is legally treated as a "foreign territory" on Indian soil, funds held here are fully repatriable. You do not need a CA certificate to move your money back to the UAE, UK, or US. The capital flows as easily as it would between London and New York (IFSCA Guidelines).

How it works:

When you invest in GIFT City, your money stays in foreign currency. USD in, USD out. EUR in, EUR out. There's no rupee conversion in between. When you redeem your investment or close your FD, the proceeds go directly to your foreign bank account.

No 15CA/CB forms. No repatriation documentation. No waiting for bank compliance officers.

This is particularly valuable for NRIs who plan to return to India eventually but want flexibility until then.

The comparison:

👉 Tip: If you've been burned by repatriation hassles before, GIFT City offers genuine relief. Your investment stays in foreign currency. Getting it back is straightforward.

Misunderstanding #6: "US and Canada NRIs Can't Invest"

This is where GIFT City actually outperforms regular Indian mutual funds.

Most Asset Management Companies (AMCs) in mainland India refuse to accept investments from NRIs based in the US or Canada. The compliance requirements under FATCA (Foreign Account Tax Compliance Act) and PFIC rules make it operationally difficult.

GIFT City funds take a different approach.

SEBI's June 2024 amendment allows NRIs and OCIs to contribute up to 100% of the corpus in funds seeking FPI registration at GIFT IFSC. Previously, this was capped at 50%. Most GIFT City funds now accept investments from NRIs in nearly all FATF-compliant countries, including the US and Canada.

Important caveats for US NRIs:

Yes, you can invest. But the tax consequences are complex. GIFT City mutual funds may trigger PFIC treatment, requiring annual Form 8621 filings and potential punitive tax treatment. Interest income must be reported on Schedule B. Foreign accounts exceeding USD 10,000 require FBAR filing.

Some US NRIs we work with prefer GIFT City FDs over mutual funds because the tax treatment of fixed interest income is simpler than navigating PFIC rules.

The bottom line:

Unlike regular Indian mutual funds that flatly reject US/Canada applications, GIFT City offers a door that's actually open. Walk through it with eyes open about the tax reporting obligations in your home country.

👉 Tip: US and Canada NRIs have limited options for investing in India. GIFT City is one of the few legitimate routes. Consult a US-India cross-border tax specialist before investing.

Misunderstanding #7: "GIFT City Is Too New to Trust"

We understand the hesitation. GIFT City's IFSC formally opened for business in 2015. IFSCA was established in 2020. Compared to Singapore or Dubai, this is a young financial centre.

But the numbers tell a different story.

As of August 2025, total banking assets in GIFT IFSC have surpassed USD 94 billion. Monthly trading turnover across its exchanges exceeds USD 100 billion (IFSCA Bulletin Q1 2025). The IFSC hosts 32 banks, more than 337 capital market intermediaries, 32 fintech entities, 47 insurance and reinsurance firms, and over 272 AIFs.

Who operates here:

The banks running IFSC Banking Units (IBUs) include SBI, HDFC, ICICI, Axis, Kotak, and Federal Bank. The AMCs launching funds include Tata, DSP, Edelweiss, and others you've trusted with your mainland India investments.

You're not trusting an unknown entity. You're trusting the same institutions through a different regulatory window.

The infrastructure:

GIFT City is India's first operational greenfield smart city. The International Financial Services Centre has world-class infrastructure including centralised cooling, walk-to-work design, and IGBC certification. It's built to compete with Dubai and Singapore, not just in regulations but in physical facilities.

What's genuinely different:

The product ecosystem is still maturing. As of late 2025, you have access to perhaps 20-30 GIFT City mutual funds versus 1,500+ schemes in regular Indian markets. Track records are limited. Most GIFT City mutual funds launched between 2022-2025, giving you only 2-3 years of performance data.

Compare this to established Indian funds with 10-15 year histories showing how they performed during 2008, 2020, and 2022 corrections. That data simply doesn't exist for GIFT City funds.

👉 Tip: GIFT City is backed by India's top financial institutions. The regulatory framework is sound. But approach it as an early adopter, not as a follower of proven strategies. Start with simpler products like FDs before moving to newer offerings.

What Most Guides Miss: The Return-to-India Question

Here's something we discuss with NRIs that rarely appears in GIFT City articles.

What happens when you return to India and become a resident?

GIFT City's tax advantages are designed for NRIs. If you return to India and become a Resident, the tax treatment changes. You can continue holding GIFT City investments, but the tax exemptions may not apply in the same way (PrimeInvestor).

This matters because many UAE NRIs invest with the plan of eventually returning home. Your GIFT City strategy should factor in this transition.

During your RNOR (Resident but Not Ordinarily Resident) period, you may still qualify for certain benefits. But once you become an ordinary resident, your global income becomes taxable in India.

The practical implication: GIFT City works best if you plan to remain an NRI for a significant period. If you're returning to India within 2-3 years, the setup costs and learning curve may not be worth it.

👉 Tip: Factor your return-to-India timeline into your GIFT City strategy. The tax benefits are valuable, but they're designed for NRIs, not residents.

A Decision Framework: Is GIFT City Right for You?

Based on thousands of conversations with NRIs, here's when GIFT City makes the most sense:

GIFT City is ideal if you:

• Live in a zero-tax jurisdiction (UAE, Bahrain, Qatar, Singapore)
• Want to protect against rupee depreciation
• Plan to remain an NRI for 5+ years
• Need simplified repatriation
• Are a US/Canada NRI locked out of regular Indian mutual funds

GIFT City may not be ideal if you:

• Live in a high-tax jurisdiction (UK, US, Germany) and can't afford the tax complexity
• Are returning to India within 2-3 years
• Need DICGC deposit insurance for peace of mind
• Prefer proven 10-15 year fund track records over newer offerings

Key Takeaway

GIFT City is neither a magic tax haven nor an overhyped financial experiment. It's a legitimate, well-regulated investment avenue with specific advantages for specific NRI profiles.

The seven misunderstandings we've covered represent real money lost by real NRIs. Some paid taxes they didn't owe because they didn't plan for their country of residence. 

Others missed years of investment growth because they thought the entry barrier was too high. A few were shocked when they discovered their deposits weren't insured.

Your job is to understand what GIFT City actually offers, how it fits your situation, and what trade-offs you're making.

We've helped thousands of NRIs navigate these decisions through our WhatsApp community. 

If you're still unsure whether GIFT City makes sense for your specific situation, join the conversation. You'll find NRIs who've been exactly where you are now.

Download the Belong app to explore GIFT City FD rates, compare GIFT City mutual funds, and access tools built specifically for NRIs. Track the Gift Nifty to stay connected to Indian markets in real-time.

Sources:

• IFSCA Fund Management Regulations 2022 (Amended 2025)
• Income Tax Act Sections 10(4D), 10(4E), 80LA
• IFSCA Bulletin Q1 2025
• GOV.UK Foreign Income Guidelines (April 2025)
• DICGC Deposit Insurance Limits
• Business Standard (Tata GIFT City Fund Launch, September 2025)
• Axis Bank GIFT City FAQ

Ankur Choudhary is an IIT Kanpur alumnus (2008) with 12+ years in finance. As a SEBI-registered investment advisor and CEO of Belong, he specializes in helping NRIs navigate cross-border investments.