Relocating an Offshore Fund to GIFT City: The Tax-Neutral Relocation Playbook

Every year, more sponsors of Mauritius-, Singapore- and Cayman-domiciled funds ask the same question: does it still make sense to run this fund from where it has always been run, or should it move closer to where the capital and the deal flow actually are? For a growing number of them, the answer is GIFT City - and India's tax framework has a specific, purpose-built mechanism for making that move without triggering an immediate tax cost.

Why "relocation" is a defined concept, not just a move

Simply shutting down an offshore fund and starting a new one in GIFT City would typically be treated as a disposal of the old fund's assets - a taxable event for the fund and potentially for its investors. India's tax law addresses this directly, through a specific pair of provisions inserted into Section 47 of the Income-tax Act: clause (viiac) covers the transfer of capital assets from the "original fund" to the "resultant fund" on relocation, and clause (viiad) covers the corresponding transfer by an investor of their shares, units or interest in the original fund in exchange for the equivalent in the resultant fund. Neither transfer is treated as a "transfer" for capital-gains purposes at all - meaning no tax bill crystallises on the relocation itself.

This is not a loophole being informally tolerated - it is a deliberate policy design, originally inserted by the Finance Act, 2021, meant to make GIFT City a credible destination for funds that already exist elsewhere, not just a venue for brand-new ones. And it keeps expanding: the "resultant fund" was originally defined as a fund registered in India as a Category I, II or III Alternative Investment Fund located in an IFSC. The Finance Bill, 2025 broadened that definition to also include Retail Schemes and Exchange Traded Funds registered under the IFSCA framework - meaning the relocation route is no longer limited to the AIF-equivalent structure alone.

Why sponsors are actually considering it

The pull is not abstract. A fund relocating into GIFT City's Restricted Scheme structure - the framework equivalent to India's domestic Category I/II/III AIFs - gains access to the same tax package that applies to any GIFT City entity: the Section 80LA income-tax holiday, reduced MAT, GST and stamp-duty exemptions on IFSC transactions, and no Securities Transaction Tax on IFSC exchange dealings.

For fund managers specifically, Section 9A's safe harbour means the manager can operate physically from GIFT City without that presence, by itself, creating a taxable business connection in India for the fund - addressing what was historically one of the central reasons offshore fund managers avoided an Indian physical presence altogether.

What has to be true for it to work

Tax-neutral relocation is not automatic - it depends on meeting the conditions attached to the relevant provisions, and those conditions are specific rather than general. A sponsor considering this route needs the relocation structured correctly from the outset: the right entity form on the receiving end in GIFT City, the right documentation trail showing the transfer as a genuine relocation rather than a disguised new fund launch, and careful attention to how existing investor commitments and rights carry across.

This is also where the broader GIFT City tax stack and the relocation-specific provisions need to be read together, not in isolation - a relocation that is technically tax-neutral on the transfer itself still needs the destination entity's ongoing tax position (holiday eligibility, sunset-clause timing, MAT treatment) mapped correctly for the relocation to actually deliver the value the sponsor is expecting.

Who this is genuinely right for

This is not a universal recommendation. A fund with a short remaining life, or one whose investor base has strong institutional preferences tied to a specific existing domicile, may find the relocation cost and complexity outweigh the benefit. It tends to make the most sense for funds with meaningful remaining runway, an India-heavy or India-adjacent investment mandate, and sponsors willing to invest in getting the structuring right rather than treating it as a formality.

The takeaway

Tax-neutral relocation is one of the more sophisticated tools in the GIFT City toolkit - genuinely useful for the right fund, and genuinely capable of going wrong if the conditions are not met precisely. If you are a sponsor evaluating whether to move an existing fund, the conversation should start with the relocation conditions themselves, not with the destination's tax rates.