Is Interest from a GIFT City Bank Account Taxable for NRIs?

This is one of the most searched questions we see from our community.

And the answer most people find online is incomplete.

"Tax-free!" the articles say. Full stop. No further context.

The truth is more layered. Interest from a GIFT City bank account is completely tax-free in India. That part is clear and well-established. But for NRIs living in the UK, US, or even the UAE, the India tax treatment is only half the picture.

Your country of residence has its own tax rules. And India's exemption does not automatically travel with you.

At Belong, we work with NRIs and resident Indians across the UAE, UK, US, and beyond. We see the same misunderstanding repeatedly: investors who plan their returns based on India's zero-tax treatment, without accounting for what their home country expects.

This article gives you the complete picture. India taxation first. Then country-by-country. Then what changes when your residency changes.

The India Position: Completely Tax-Free

Let us start with what is clear and settled.

Interest earned on GIFT City bank accounts, whether savings accounts or fixed deposits, is completely exempt from Indian income tax for non-residents.

No tax is deducted at source (TDS). Your returns land in your IBU account in full. There is no refund to chase from the Indian tax department. Source: GIFT City tax benefits guide, Belong: "The interest earned from these deposits are tax-free in India, and there is no tax deducted at source (TDS) as well."

This exemption is confirmed by CBDT Circular No. 26/2016 dated July 4, 2016, and remains in force through FY 2025-26. Source: CBDT Circular No. 26/2016; IDFC FIRST Bank GIFT City NRI accounts guide.

The legal basis is FEMA's treatment of GIFT City as foreign territory. Since FEMA treats GIFT City as an offshore territory for financial purposes, GIFT City FDs are exempt from income tax in India with no corresponding TDS applicable either. Source: Belong FD taxation for NRIs guide.

This applies to:

Interest on savings accounts. Interest on fixed deposits. Interest from lending to IFSC units. Source: Investmates GIFT City tax benefits guide.

It does not cover all GIFT City income. Capital gains from mutual funds, dividends, and AIF returns have their own tax treatment. We cover those separately in this article.

👉 Tip: "No TDS" means you receive 100% of your contracted interest rate. Unlike NRO FDs which deduct 30% TDS before you see a rupee, GIFT City credits the full amount. For an NRE FD, interest is also tax-free in India, but your money converts to rupees on the way in. GIFT City stays in USD throughout. Use our NRI FD rates tool to compare effective returns across account types.

Why "Tax-Free in India" Is Not the Full Story

Here is where most articles stop. Here is where we continue.

India does not tax your GIFT City interest. But you still live somewhere. And that somewhere has its own tax system.

As an NRI, you are a tax resident of another country. Most countries tax their residents on worldwide income, including foreign-source interest. The fact that India has chosen not to tax this income does not bind your country of residence to the same position.

The interest is taxable only in the investor's country of residence. Source: Belong GIFT City tax benefits guide.

This is the statement that most articles bury in a footnote. We are putting it front and centre.

What this means in practice depends entirely on where you live.

Country-by-Country Tax Treatment

UAE-Based NRIs: The Best Case

UAE-based NRIs are in the most favourable position.

The UAE currently has no personal income tax on individuals. Interest income earned on GIFT City accounts is tax-free in India and faces no tax in the UAE either.

India doesn't tax your GIFT City income and your residence country has zero tax, so you keep 100% of returns. This makes GIFT City far more attractive for you than traditional Indian investments. Source: Investmates GIFT City tax benefits, NRI guide.

This is the cleanest tax position in the GIFT City ecosystem. UAE NRIs receive their full contracted interest rate. No deduction in India. No deduction in the UAE. 100% of the return is retained.

This is one reason GIFT City FDs are particularly popular among UAE-based NRIs. The tax efficiency is genuine end-to-end.

UK-Based NRIs: Report and Pay in the UK

UK-based NRIs must report GIFT City interest income under UK Self Assessment.

Interest from foreign accounts is taxable in the UK as savings income. The rate depends on your total income and your Personal Savings Allowance. Basic rate taxpayers receive a GBP 1,000 allowance. Higher rate taxpayers receive GBP 500. Additional rate taxpayers receive no allowance. Source: UK HMRC savings interest guide.

From April 2025, the remittance basis of taxation ended for UK residents. All foreign income must now be declared in the UK regardless of whether it is remitted or kept overseas. Source: UK HMRC; Finance Act 2025.

This is a material change for UK NRIs who previously relied on the remittance basis to defer UK tax on offshore income.

What it means practically: A UK NRI earning USD 500 in annual GIFT City interest must declare this on their Self Assessment return. The effective UK tax rate on this income depends on their overall income level.

India-UK DTAA does not eliminate this UK tax obligation. It prevents double taxation, meaning if you were taxed in India, you could claim relief in the UK. But since India does not tax GIFT City interest, the DTAA relief mechanism does not reduce your UK tax bill further. Source: India-UK DTAA.

US-Based NRIs: Declare, Report, and Watch for PFIC

US-based NRIs face the most complex position.

GIFT City FD interest is ordinary income under US tax law. It must be declared on your federal tax return as foreign interest income. Your effective federal rate depends on your income bracket, ranging from 10% to 37%. Source: IRS Publication 550.

Additionally, all US persons with foreign financial accounts must file an FBAR if aggregate balances exceed USD 10,000 at any point during the tax year. FATCA reporting via Form 8938 may also apply depending on account balances. Source: IRS FBAR filing requirements.

The India-US DTAA helps by crediting Indian tax paid against US tax liability. But since India does not tax GIFT City interest, there is no Indian tax to credit. Your full US tax liability applies. Source: India-US DTAA.

The PFIC Question for US NRIs:

This applies specifically to GIFT City mutual funds, not fixed deposits.

Most GIFT City mutual funds are likely classified as Passive Foreign Investment Companies (PFICs) under US tax law. PFIC classification creates a punitive annual tax on unrealised gains and an interest charge on deferred taxes. Source: IRS PFIC guidance.

Fixed deposits at GIFT City IBUs are generally safer for US NRIs from a compliance standpoint. The interest is ordinary income, declared on your federal return. The PFIC regime does not apply to cash deposits.

Our position: US NRIs should consult a US-India cross-border tax specialist before investing in GIFT City mutual funds. GIFT City FDs are a cleaner entry point for US NRIs. Source: Belong GIFT City banking explained guide.

👉 Tip: If you are a US-based NRI, do not assume GIFT City's India tax-free status simplifies your US filing. FBAR and FATCA obligations apply regardless of whether India taxes your GIFT City income. Build your compliance calendar around both jurisdictions before you invest.

Tax Treatment by Account Type: The Full Picture

Interest is just one component of GIFT City income. Here is how all major account and product types are taxed in India for NRIs.

Source: CBDT Circular No. 26/2016; Belong GIFT City tax benefits guide; Investmates GIFT City tax benefits; IFSCA regulations; Income Tax Act.

A Note on Mutual Funds

For NRIs, capital gains from GIFT City mutual funds were exempt under Section 10(4D) of the Income Tax Act. Source: Belong GIFT City returning NRI guide.

This makes GIFT City mutual funds highly tax-efficient for NRIs in zero-tax jurisdictions like the UAE. Explore available funds including the DSP Global Equity Fund, the Tata India Dynamic Equity Fund, the Edelweiss Greater China Equity Fund, and the Sundaram India Mid Cap Fund through our GIFT City Mutual Funds tool.

A Note on AIFs

NRIs who receive income solely from Category I or II AIFs in GIFT City enjoy a significant compliance advantage: exemption from filing tax returns in India, provided the AIFs have already withheld appropriate taxes. In these specific scenarios, you're also exempt from obtaining a PAN. Source: Investmates GIFT City tax benefits guide.

Browse available AIF options on our GIFT City AIF explorer.

What Changes When You Return to India

This is one of the most important tax questions for NRIs who plan to return.

As an NRI, interest on GIFT City USD FDs was tax-free in India. As a resident, that interest becomes taxable at your income tax slab rate. The FD itself continues until maturity. Your rate doesn't change. The bank won't close it early. But when you file your Indian ITR, you must declare this interest as income. Source: Belong GIFT City returning NRI guide.

The transition works in three stages.

Stage 1: Still NRI

Your GIFT City interest remains fully tax-free in India. No TDS. No filing required for GIFT City income specifically.

Stage 2: RNOR (Resident but Not Ordinarily Resident)

When you return to India, most NRIs pass through an RNOR window first. During RNOR status, income that accrues outside India remains exempt from Indian tax in many cases. GIFT City is treated as foreign territory under FEMA, so RNOR investors may still enjoy tax-free treatment during this window. Source: Belong RNOR status guide.

The RNOR window typically lasts two to three years depending on your prior residence history. This is your planning window: a period where you can hold GIFT City investments, earn tax-free returns in India, and decide how to redeploy capital before full resident taxation kicks in.

Stage 3: Resident and Ordinarily Resident (ROR)

Once you become a full ROR, your worldwide income is taxable in India. GIFT City interest income is added to your taxable income and taxed at your applicable slab rate.

A resident in the 30% bracket pays significantly more than the zero tax an NRI enjoyed. Source: Belong GIFT City returning NRI guide.

What to do: Plan your GIFT City redemptions and reinvestments during your RNOR window where possible. Booking profits while still NRI or during the RNOR window maximises your tax-free benefit. Do not wait until you become a full ROR to think about this.

👉 Tip: If you are planning to return to India within one to two years, your RNOR window is a valuable planning opportunity. GIFT City returns that are tax-free now could be taxed at 30% once you become fully resident. Talk to a tax advisor about timing your GIFT City redemptions before your RNOR period expires.

The ITR Filing Question for NRIs

Many NRIs ask: do I need to file an Indian ITR just because I earn GIFT City interest?

The short answer: not necessarily, if GIFT City is your only India income.

Since GIFT City interest is fully exempt and no TDS is deducted, it does not trigger a mandatory ITR filing obligation solely on its own. Source: Belong GIFT City tax benefits guide.

However, if you have other Indian income, NRO interest, rental income, capital gains from Indian stocks, you must file an ITR and can include GIFT City income in that filing as exempt income.

For Category I and II AIF investors specifically, NRIs don't need to file Indian ITR or obtain PAN where the fund withholds taxes at source. Source: Investmates GIFT City tax benefits guide.

Filing an ITR voluntarily even when not required is good practice if you hold multiple India-linked investments. It creates a clean paper trail and simplifies repatriation and future compliance reviews.

For Resident Indians: How the Tax Picture Works

If you are a resident Indian accessing GIFT City through LRS, the tax treatment is different from NRIs.

Interest earned on your GIFT City Call Account or FD is not tax-free for you as a resident. While GIFT City is treated as foreign territory under FEMA, you as an Indian tax resident are taxed on your worldwide income under the Income Tax Act.

Your GIFT City interest is added to your total income and taxed at your applicable slab rate. Source: Income Tax Act; IDFC FIRST Bank GIFT City NRI accounts guide.

However: No TDS is deducted at source from your GIFT City account. The exemption from TDS applies to the IBU's obligation to deduct. Your obligation to declare and pay the tax in your ITR remains. This is an important distinction. Not receiving a TDS deduction does not mean the income is untaxed for you.

What resident Indians gain from GIFT City instead: The primary benefit for resident Indians is not the tax-free treatment (which applies only to non-residents). It is the USD denomination and global diversification. Earning 4 to 5% in USD, protecting against INR depreciation, and accessing global mutual funds through a regulated framework are the genuine advantages for resident Indians.

The rupee has historically depreciated approximately 3 to 4% annually against the dollar. Source: RBI exchange rate data. Holding 10 to 15% of your portfolio in USD through GIFT City is a structural hedge, even if the interest income is taxable in India. Explore Indian and global fund options together through Belong's mutual funds platform.

Track GIFT Nifty movements using our GIFT Nifty live tracker to stay informed on how global markets are pricing Indian equity sentiment.

👉 Tip: As a resident Indian, do not invest in GIFT City expecting the NRI tax-free treatment. That benefit is reserved for non-residents. Your advantage from GIFT City is currency protection, global access, and a USD savings layer on top of your INR-denominated portfolio. Plan accordingly.

How GIFT City Compares to Other NRI Accounts on Tax

Source: RBI Master Direction on Non-Resident Accounts; CBDT Circular No. 26/2016; Belong FD taxation for NRIs guide.

GIFT City and NRE FDs both offer tax-free interest in India. The key difference is currency. NRE FDs convert your money to rupees on entry and back to foreign currency on exit. GIFT City never converts. Source: Belong GIFT City FDs vs regular bank FDs guide.

GIFT City and FCNR are the most comparable products: both foreign currency, both tax-free in India, both fully repatriable. The difference is tenure flexibility. FCNR requires a minimum one-year lock-in. GIFT City FDs start from 7 days. Source: RBI FCNR Master Direction; Belong NRE vs FCNR guide.

Explore More GIFT City Products

Once you understand the tax framework, GIFT City's broader product ecosystem becomes more meaningful.

NRIs can participate in GIFT City IPOs denominated in USD. Browse available IPO products on Belong.

For higher-ticket investors, Category III AIFs with capital gains tax exemption on specified securities are available. Browse options on our GIFT City AIF explorer.

For a full picture of what GIFT City banking offers beyond tax considerations, see our GIFT City banking explained guide and our GIFT City pros and cons article.

FAQs

Is GIFT City bank account interest really tax-free in India?

Yes, completely. Interest on GIFT City savings accounts and fixed deposits is fully exempt from Indian income tax for non-residents. No TDS is deducted. This is confirmed by CBDT Circular No. 26/2016 and remains in force through FY 2025-26. Source: CBDT; IDFC FIRST Bank GIFT City NRI accounts guide.

Do I need to pay tax on GIFT City interest if I live in the UAE?

Not in India and not in the UAE. The UAE currently has no personal income tax. You keep 100% of your contracted interest rate. This is the most tax-efficient position for any GIFT City investor globally. Source: UAE Ministry of Finance; CBDT Circular No. 26/2016.

Do UK-based NRIs pay tax on GIFT City interest?

Yes, in the UK. GIFT City interest is foreign savings income and must be declared under UK Self Assessment. From April 2025, the remittance basis ended. All foreign income is reportable in the UK regardless of whether it is remitted. Source: UK HMRC; Finance Act 2025.

Do US-based NRIs need to declare GIFT City interest?

Yes. GIFT City FD interest is ordinary income under US tax law and must be declared on your federal return. FBAR filing applies if aggregate foreign account balances exceed USD 10,000. FATCA reporting via Form 8938 may also be required. Source: IRS Publication 550; IRS FBAR guidelines.

Does GIFT City interest become taxable if I return to India?

Yes, once you become a Resident and Ordinarily Resident (ROR). During your RNOR window, GIFT City income may still be partially sheltered. Once you are a full ROR, GIFT City interest is added to your worldwide income and taxed at your applicable slab rate. Source: Income Tax Act; Belong GIFT City returning NRI guide.

Is GIFT City interest tax-free for resident Indians?

No. The India tax-free treatment applies to non-residents only. Resident Indians must declare GIFT City interest as part of their taxable worldwide income and pay tax at their applicable slab rate. No TDS is deducted at the IBU, but the tax obligation remains. Source: Income Tax Act; IDFC FIRST Bank GIFT City NRI accounts guide.

Do I need to file an Indian ITR because of GIFT City interest?

Not necessarily if GIFT City is your only Indian income. Since the interest is exempt and no TDS is deducted, it does not by itself trigger a mandatory ITR filing obligation for NRIs. However, if you have other Indian income, include GIFT City income as exempt income in your return. Source: Belong GIFT City tax benefits guide.

Disclaimer: This article is for informational purposes only. It does not constitute personalised investment or tax advice. Tax laws change frequently. Please consult a SEBI-registered advisor and, where relevant, a qualified tax advisor in your country of residence before making investment decisions. Sources: CBDT Circular No. 26/2016, Income Tax Act, IFSCA regulations, FEMA, RBI Master Direction on Non-Resident Accounts, UK HMRC Finance Act 2025, IRS Publications 550 and FBAR guidelines, India-UK DTAA, India-US DTAA, IDFC FIRST Bank GIFT City NRI accounts guide, Investmates GIFT City tax benefits guide, Belong FD taxation for NRIs guide, Belong GIFT City tax benefits guide.