Last month, a reader from Birmingham sent us an urgent message. He had moved £20,000 into a GIFT City FD expecting tax-free returns. Three months later, his accountant asked why he hadn't declared the interest on his UK tax return.
He assumed "tax-free in India" meant tax-free everywhere. It doesn't.
GIFT City offers genuine advantages for UK NRIs. Zero TDS on interest, protection from rupee depreciation, and simplified repatriation. But these benefits come with fine print that most articles skip.
After helping hundreds of NRIs navigate these waters, we've compiled the critical watch-outs that could save you from costly mistakes.
Your GIFT City FD Has No Deposit Insurance
Here's something that surprised even experienced investors: GIFT City fixed deposits are not covered by India's deposit insurance scheme.
Traditional NRE and NRO fixed deposits come with DICGC coverage up to ₹5 lakh (principal plus interest). If your bank fails, this government-backed insurance protects your money. Source: DICGC
GIFT City operates under IFSCA regulations, not RBI. The Axis Bank GIFT City FAQ states clearly: deposits are "not covered in the RBI Deposit insurance scheme."
Does this mean GIFT City is unsafe? Not necessarily. The banks operating in GIFT City-SBI, HDFC, ICICI, Axis-are the same trusted names you know. But there's no safety net if something goes wrong.
👉 Tip: If deposit insurance matters to you, consider spreading investments across GIFT City FDs and insured NRE FDs. Use our NRI FD comparison tool to compare rates across all deposit types.
HMRC Wants to Know About Your GIFT City Returns
The biggest misconception I encounter: "Tax-free in India means I don't need to report it in the UK."
Wrong. From 6 April 2025, the rules tightened significantly. Source: GOV.UK
As a UK tax resident, you must report all foreign income on your Self Assessment tax return, regardless of amount. The previous £2,000 exemption for small foreign income no longer applies. You'll need the SA106 supplementary form specifically for overseas income.
The good news? You won't pay tax twice. The India-UK Double Taxation Agreement lets you claim Foreign Tax Credit Relief. Since GIFT City interest has zero TDS in India, you'll likely owe UK tax on the full interest amount at your marginal rate.
👉 Tip: Convert your interest income to GBP using HMRC's annual average exchange rate. Keep records of all transactions. Consider working with a cross-border tax specialist who understands both jurisdictions.
Premature Withdrawal Penalties Vary Widely
Life happens. You might need your money before your FD matures. GIFT City banks allow premature withdrawal, but the penalty structures differ significantly.
Bank | Premature Penalty | Notice Required |
|---|---|---|
Axis Bank | 15 bps lower rate | 3 working days |
ICICI Bank | 0.50% penalty | Per terms |
RBL Bank | 100 bps penalty | Per terms |
Source: Axis Bank GIFT City, ICICI GIFT City
Critical detail: if you withdraw within the first week, most banks pay zero interest. Your money sits idle and earns nothing.
Compare this with FCNR deposits where premature withdrawal before one year forfeits the entire interest amount. GIFT City is more flexible, but flexibility has a price.
👉 Tip: Choose tenures you can realistically commit to. If you're uncertain, start with shorter tenures (3-6 months) even if rates are slightly lower.
SWIFT Transfer Costs Add Up Quickly
Moving money from your UK bank to GIFT City involves international wire transfers. These aren't free.
Your UK bank charges £25-50 for outgoing transfers. Intermediary banks deduct $10-30. Exchange rate markups of 1-3% quietly reduce your deposit. Source: Wise
Example: Transferring £10,000 might credit only £9,650-9,750 after charges. On a 4% annual return, you'd need months to recover transfer costs.
👉 Tip: Transfer larger amounts less frequently. Some UK NRIs use Wise to convert GBP to USD first, then transfer to GIFT City.
The Regulatory Landscape Is Still Evolving
GIFT City launched in 2015. IFSCA was established in 2020. This is a young regulatory environment.
Rules change. In 2025, IFSCA reduced the AIF minimum investment from USD 150,000 to USD 75,000. But regulators also prohibited investments into certain US-based ETFs, affecting some investors' portfolio plans. Source: Goodreturns
Build flexibility into your strategy. Don't assume today's rules remain unchanged.
High Minimum Investments for Advanced Products
GIFT City FDs are accessible-start with USD 1,000 in some cases. But sophisticated GIFT City products have steeper barriers.
Alternative Investment Funds require minimum USD 75,000. Portfolio Management Services start at USD 150,000. For many UK NRIs, FDs remain the practical starting point.
Currency Conversion Timing Matters
GIFT City FDs are denominated in USD. As a UK NRI earning in GBP, you'll convert twice-GBP to USD when investing, and back when repatriating.
GIFT City protects you from INR depreciation. It doesn't protect you from adverse GBP-USD movements. If the pound strengthens against the dollar during your investment, returns shrink when converted back.
👉 Tip: Track currency trends and consider splitting investments across different dates to average out exchange rate variations.
Documentation and KYC Requirements
Opening a GIFT City account requires specific documents UK NRIs sometimes struggle to provide.
A valid PAN card is mandatory. A Tax Residency Certificate from HMRC helps claim DTAA benefits. UK address proof must be recent (within 3 months). Your Aadhaar, if you have one, simplifies verification.
Budget 2-3 weeks from application to account activation. Don't wait until you need the account urgently.
Understanding Your Tax Residency Status
Before investing, confirm your residential status for Indian tax purposes. Use our Residential Status Calculator to check.
If you're planning to return to India, your status may shift from NRI to RNOR to Resident over 2-3 years. Each status has different tax implications for your GIFT City investments.
GIFT City's tax advantages are designed for NRIs. Understand what happens if your status changes mid-investment.
The Bottom Line
GIFT City presents genuine opportunities for UK NRIs-tax-free interest in India, USD denomination, simplified repatriation. But approach with open eyes. No deposit insurance. Mandatory HMRC reporting. SWIFT charges. Currency conversion costs. Evolving regulations.
These aren't reasons to avoid GIFT City. They're reasons to plan carefully.
Use our Compliance Compass to check your obligations. Compare NRI FD rates across all deposit types. Join our WhatsApp community to learn from other UK NRIs.
When you're ready to invest, download the Belong app to access GIFT City products with clear guidance.
