Union Budget 2026-27: Centre doubles GIFT City tax holiday to 20 years

Budget 2026 extends the income tax deduction window for GIFT City IFSC units and offshore banks to 20 years, offering greater certainty to lenders and global financial firms expanding India operations

The Union Budget on Sunday proposed extending the tax holiday for businesses operating in the GIFT City International Financial Services Centre (IFSC) to 20 years, from the existing 10, in a move aimed at boosting the competitiveness of the financial hub.

 

“To increase the competitiveness of IFSC, it is proposed to increase the period of deduction to 20 consecutive years out of 25 years for units in IFSC and 20 consecutive years for offshore banking units (OBUs),” the memorandum explaining the provisions of the Finance Bill, 2026, said.

 

Under the proposal, business income of these units will be taxed at 15 per cent after the expiry of the tax-holiday period—lower than the 25 per cent to 38 per cent they otherwise would have attracted. The changes will come into effect from April 1. The Centre has also proposed to rationalise the tax treatment of inter-group loans and advances routed through treasury centres at IFSC.

 

 

Currently, IFSC units and OBUs are eligible for a 100 per cent tax exemption for 10 years out of a block of 15 years.

 

The move comes at a time when the existing 10-year tax holiday for several large institutions, including State Bank of India, Bank of Baroda and Yes Bank, was set to expire, creating uncertainty around their long-term operations in the IFSC. Some of these lenders had written to the government seeking an extension of the tax benefit.

 

Industry participants said the extended tax window would help accelerate activity at GIFT City and encourage banks and other financial players to scale up operations.

 

“The extension of the tax deduction window offers clarity and predictability that global financial institutions look for when making long-term location and capital allocation decisions,” said Sanjay Kaul, managing director of GIFT City.

 

“These measures are set to significantly boost GIFT City IFSC’s attractiveness as a global financial hub. They also support deeper onshoring of offshore financial activities, reducing reliance on overseas IFSCs and retaining value within India,” said Jaiman Patel, tax partner at EY India.

 

GIFT City IFSC has seen strong momentum over the past 12–18 months, aided by an improved regulatory framework under the International Financial Services Centres Authority (IFSCA), established in 2019. The regulator recently crossed the milestone of registering over 1,000 entities across banking, reinsurance, asset management, and aircraft and ship leasing.

 

Banks operating from GIFT City have cumulatively disbursed more than $100 billion in foreign-currency loans. The hub currently hosts 35 banks, and nearly one in every three dollars of external commercial borrowing is now initiated from the IFSC.