GIFT City vs SEZ - How Are They Regulated Differently

If you've been researching investments in India, you've probably come across both GIFT City and SEZs. Both sound similar. Both promise tax benefits. Both are "special zones" created by the government.

But here's what confuses most NRIs: GIFT City is technically inside an SEZ. So how can they be different?

This confusion has led many NRIs in our WhatsApp community to make suboptimal choices. Some invested in regular SEZ-based products thinking they'd get the same benefits as GIFT City. Others stayed away from GIFT City because they thought the SEZ sunset clause applied to it.

At Belong, we've spent months helping NRIs understand this distinction. And it matters more than you think, especially for taxation, repatriation, and long-term wealth building.

Let me clear this up once and for all.

The Core Difference in 30 Seconds

Here's the simplest explanation:

SEZs (Special Economic Zones) are areas designed primarily for export-oriented businesses. They're regulated by the Ministry of Commerce under the SEZ Act, 2005.

GIFT City IFSC (International Financial Services Centre) is a special financial hub within an SEZ. It's regulated by IFSCA, a unified authority that replaced four separate regulators.

Think of it this way: SEZs are for companies that export goods and services. GIFT City IFSC is for financial services that compete with Singapore and Dubai.

The regulatory treatment is completely different. And for NRIs, only one of these is truly relevant for investments.

What Exactly is an SEZ?

Special Economic Zones were created under the SEZ Act, 2005 to boost exports and attract foreign investment.

India currently has over 270 active SEZs spread across the country. They support more than 2.3 million jobs and generated exports worth ₹7.94 lakh crore in 2022-23 (Source: Ministry of Commerce).

SEZs focus primarily on:

• IT and IT-enabled services
• Manufacturing for exports
• Pharmaceuticals
• Electronics
• Textiles

The key word here is exports. SEZ units must export goods or services to qualify for benefits.

👉 Tip: SEZs are business zones for companies, not investment destinations for individuals. This distinction is crucial for NRIs.

How SEZs Are Regulated

SEZs operate under multiple regulatory bodies:

1. Ministry of Commerce and Industry oversees the overall SEZ framework
2. Development Commissioner administers each SEZ zone
3. Board of Approval (BoA) approves new SEZ proposals
4. For financial activities within SEZs, you still need approvals from RBI, SEBI, IRDAI, or PFRDA depending on the activity

This multi-regulator setup creates complexity. A banking unit in a regular SEZ would need approval from the Development Commissioner AND the RBI. An insurance company would need Development Commissioner approval AND IRDAI clearance.

For businesses, this means dealing with multiple authorities. For investors, it means complicated compliance.

What Makes GIFT City Different?

GIFT City (Gujarat International Finance Tec-City) is India's first and only International Financial Services Centre. It's located in Gandhinagar, Gujarat.

Yes, GIFT City is technically within a Multi-Services SEZ called GIFT SEZ. But here's the critical difference: the IFSC portion operates under completely different rules.

The Government of India established IFSCA (International Financial Services Centres Authority) in 2020 through a separate Act of Parliament. This single authority now holds the combined powers of:

• Reserve Bank of India (RBI)
• Securities and Exchange Board of India (SEBI)
• Insurance Regulatory and Development Authority (IRDAI)
• Pension Fund Regulatory and Development Authority (PFRDA)

This is unprecedented in Indian regulation. One authority handling what previously required four separate approvals (Source: IFSCA).

👉 Tip: GIFT City's unified regulator is modeled after Singapore and Dubai financial centres. This is intentional. It's designed to compete globally.

The "Non-Resident" Treatment

Here's where it gets interesting for NRIs.

Under the Foreign Exchange Management Act (FEMA), GIFT City IFSC is treated as foreign territory for financial purposes. Units operating there are considered non-resident entities (Source: RBI Notification).

This means:

• All transactions happen in foreign currencies (USD, EUR, GBP, etc.)
• No mandatory conversion to Indian Rupees
• FEMA restrictions that apply to domestic India don't apply here
• Repatriation follows international norms, not domestic rules

For NRIs, this creates a completely different investment environment. You're essentially investing in "India but outside India" from a regulatory perspective.

Regulatory Framework: A Direct Comparison

The practical impact? In a regular SEZ, setting up a financial services unit requires navigating multiple regulators. In GIFT City, you deal with one authority that has consolidated powers.

As of September 2025, GIFT IFSC hosts over 1,034 registered entities across banking, capital markets, insurance, and fintech.

Tax Benefits: The Sunset Clause Problem

This is where the confusion peaks. Let me explain why GIFT City's tax treatment is fundamentally different from regular SEZs.

SEZ Tax Benefits (Section 10AA) - Expired for New Units

Under Section 10AA of the Income Tax Act, SEZ units could claim:

• 100% tax exemption on export income for 5 years
• 50% exemption for the next 5 years
• 50% of reinvested profits for another 5 years

But here's the catch: The sunset clause kicked in on April 1, 2020.

Any SEZ unit that started operations after March 31, 2020 cannot claim these benefits. The tax holiday era for regular SEZs is over.

Units that started before the deadline can continue claiming benefits for their 15-year period. But no new unit can enter this scheme.

👉 Tip: If someone offers you an SEZ investment with Section 10AA tax benefits in 2025, be very careful. Verify if the unit actually commenced before March 2020.

GIFT City Tax Benefits (Section 80LA) - Extended to 2030

GIFT City operates under Section 80LA of the Income Tax Act, not Section 10AA. This is a completely different provision.

Section 80LA provides:

• 100% tax exemption on business income for 10 consecutive years
• You can choose any 10 years within a 15-year window
• The sunset date has been extended to March 31, 2030 (Source: Union Budget 2025)

This extension is massive. New units setting up in GIFT City even in 2029 can claim full tax benefits.

For NRI investors, this means:

• Capital gains on securities transactions within IFSC are exempt
• No Securities Transaction Tax (STT)
• No Commodity Transaction Tax (CTT)
• No stamp duty on IFSC transactions
• Dividend income taxed at flat 10% (vs higher rates elsewhere)

The difference is stark. Regular SEZs closed the door in 2020. GIFT City keeps it open until 2030.

Investment Options: What Can NRIs Actually Access?

This is where the rubber meets the road. What can you as an NRI actually invest in?

In Regular SEZs

Honestly? Very little directly.

SEZs are designed for businesses to set up units, not for individuals to invest. You can't buy an "SEZ mutual fund" or open an "SEZ fixed deposit."

You could technically invest in shares of companies operating in SEZs through the regular stock market. But that's indirect, and you get no special tax treatment as an investor.

In GIFT City IFSC

This is completely different. GIFT City offers multiple direct investment options for NRIs:

1. USD Fixed Deposits

Banks like SBI, ICICI, HDFC, and Axis have established International Banking Units (IBUs) in GIFT City. You can open foreign currency deposits in USD, EUR, GBP, and other currencies.

Key advantages:

• Interest income is tax-free for non-residents
• Principal and interest fully repatriable
• No currency conversion required
• Protected from rupee depreciation

2. Mutual Funds

Several Asset Management Companies now offer GIFT City-specific funds:

• Tata India Dynamic Equity Fund (launched September 2025, minimum $500)
• DSP Global Equity Fund
• Edelweiss Greater China Equity Fund

These funds are IFSCA-regulated and exempt from TDS. For UAE-based NRIs in a zero-tax jurisdiction, returns are effectively 100% tax-free.

Read more: GIFT City vs Regular Mutual Funds

3. Alternative Investment Funds (AIFs)

GIFT City hosts over 200 AIFs as of mid-2025. The minimum investment was recently reduced to $75,000 (Source: IFSCA Circular Feb 2025).

Category III AIFs that invest in Indian equity are fully exempt from capital gains tax in India. For UAE residents, this means completely tax-free returns.

Learn more: AIFs vs Mutual Funds

4. Stock Trading

Two international exchanges operate in GIFT City:

• India INX (India International Exchange)
• NSE IFSC

NRIs can trade in Indian and global equities, derivatives, and ETFs. The exchanges operate for 22 hours daily, accommodating investors across time zones.

👉 Tip: US-based NRIs should note that GIFT City mutual funds may trigger PFIC (Passive Foreign Investment Company) rules, requiring Form 8621 filings. UAE/GCC NRIs face no such complications.

Repatriation Rules: Another Major Difference

Repatriation is often the biggest concern for NRIs. Here's how the two zones compare:

Regular SEZ

SEZ units can repatriate earnings, but they follow standard FEMA rules. If you somehow have investments tied to SEZ units, repatriation would require:

• NRO account for INR earnings
• Form 15CA/15CB compliance
• $1 million annual limit for NRO repatriation
• CA certificates and documentation

GIFT City IFSC

Since GIFT City is treated as non-resident territory, repatriation is dramatically simpler:

• Funds can be held in foreign currency
• No conversion to INR required
• Full repatriation to any country
• No $1 million annual cap
• No Form 15CA/15CB for IFSC-to-foreign transfers

This is why we consistently recommend GIFT City products for NRIs planning to return to India or those wanting flexibility in where they eventually settle.

Read more: Repatriation Guide for NRIs

The KYC and Setup Process

Regular SEZ

There's no standard "NRI investment process" for SEZs because they're not designed for individual investors. If you're setting up a business unit, you need:

• Letter of Intent from SEZ developer
• Application to Development Commissioner
• Unit Approval Committee clearance
• Regulatory approvals (RBI/SEBI/IRDAI)
• Minimum 45-day timeline typically

GIFT City IFSC

For NRI investors, the process is much simpler:

1. Complete Video KYC (IFSCA implemented this in July 2025)
2. Submit passport, PAN card (if applicable), overseas address proof
3. Open account with chosen bank/fund house
4. Start investing

You don't need to visit India. Everything can be done digitally from UAE or any other country.

At Belong, we've streamlined this further with doorstep KYC services and integrated onboarding.

👉 Tip: Not all GIFT City products require PAN card. Category I and II AIF investors investing only in IFSC-based funds are exempt from obtaining PAN (Source: IFSCA).

Who Should Care About This Difference?

Let me be direct about who benefits from understanding this distinction:

GIFT City IFSC is relevant for:

• NRIs looking to invest in India
• Those wanting tax-efficient returns
• Investors concerned about currency depreciation
• Anyone needing simple repatriation
• High-net-worth individuals exploring AIFs

Regular SEZs are relevant for:

• Businesses looking to export goods/services
• IT companies setting up delivery centers
• Manufacturing units targeting international markets
• Companies that set up before April 2020 (for existing tax benefits)

If you're an NRI in UAE reading this for investment guidance, GIFT City IFSC is your focus area. Regular SEZs are largely irrelevant to your investment decisions.

The Global Financial Centre Ranking

Here's something that puts GIFT City's trajectory in perspective.

In the Global Financial Centres Index (March 2025), GIFT City achieved its highest-ever ranking at 46th position globally. It also ranked 5th among 15 emerging financial centres and topped the reputation index (Source: PIB).

Banks at GIFT City disbursed nearly $20 billion in dollar loans to Indian corporates, surpassing traditional hubs like London and Singapore for certain loan categories.

This isn't about national pride. It's about regulatory credibility. When global banks like JP Morgan, Barclays, and Deutsche Bank set up shop somewhere, it signals trust in the regulatory framework.

Common Misconceptions Cleared

"GIFT City benefits will expire like SEZ benefits"

No. Section 80LA (GIFT City) and Section 10AA (SEZ) are different provisions. The GIFT City sunset has been extended to March 2030. Regular SEZ sunset expired in April 2020.

"I need to set up a company to invest in GIFT City"

No. Individual NRIs can invest directly in fixed deposits, mutual funds, and AIFs. Company formation is only needed if you're setting up a business unit.

"SEZs and GIFT City have the same tax benefits"

No. GIFT City offers capital gains exemption on securities, zero STT/CTT, and different tax rates. Regular SEZs never offered these benefits.

"GIFT City is only for the ultra-wealthy"

This was partially true earlier when AIF minimums were $150,000. But with mutual funds like Tata's starting at $500 and FDs accessible to everyone, retail NRIs now have genuine options.

My Recommendation: Focus on GIFT City

After working with hundreds of NRIs through our WhatsApp community, here's my clear recommendation:

If you're an NRI looking to invest in India, focus on GIFT City IFSC, not regular SEZs.

The regulatory framework is cleaner (one authority vs multiple). The tax benefits are active (until 2030 vs expired in 2020). The products are designed for individual investors (FDs, mutual funds, AIFs vs business units only).

At Belong, we've built our entire platform around GIFT City products because we believe this is where NRI investment in India is headed. Our USD Fixed Deposits offer up to 6% returns with complete tax exemption for UAE residents. Our Mutual Funds Explorer helps you compare GIFT City funds side-by-side.

Don't let the similar-sounding names confuse you. GIFT City IFSC and regular SEZs are fundamentally different regulatory ecosystems. Choose the one designed for investors, not exporters.

Your Next Step

Understanding GIFT City vs SEZ regulation is the first step. The next is actually investing.

Check your residential status to confirm your NRI classification. Then compare GIFT City FD rates across banks.

Join many NRIs in our WhatsApp community where we discuss GIFT City investments daily. And when you're ready to invest, download the Belong app for a streamlined experience.

The regulatory distinction between GIFT City and SEZ isn't academic. It directly impacts your tax liability, repatriation flexibility, and investment options. Choose wisely.

Sources:

• IFSCA Official Website: https://ifsca.gov.in
• Ministry of Commerce SEZ Portal: https://sezindia.gov.in
• PIB GIFT City Update (2025): https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=156234
• ClearTax Section 10AA Guide: https://cleartax.in/s/section-10aa-income-tax-act
• ICICI Bank NRI GIFT City Guide: https://www.icici.bank.in/nri-banking/nriedge/nri-articles/how-can-nris-invest-in-gift-city