GIFT City Investments and Schedule FA Disclosure

With GIFT City (IFSC) rapidly emerging as India’s premier international financial hub, an increasing number of resident individuals are channelling investments into global markets through IFSC Banking Units, AIFs, ETFs, and other IFSC-registered structures. As the ITR filing season approaches, a critical compliance question demands attention: Should investments made through GIFT City be reported as “Foreign Assets” in Schedule FA of the Income-tax Return?

The answer is not as straightforward as it may appear. A careful reading of the Income-tax Act, 1961 and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“BMA”) reveals that the Schedule FA obligation depends on a specific statutory test — and that test is not automatically satisfied merely because an investment is routed through GIFT City.

 

1. The Statutory Test: What Does the Law Actually Say?

The obligation to disclose foreign assets in Schedule FA rests on two provisions:

The fourth proviso to Section 139(1) of the Income-tax Act, 1961 makes it mandatory for a Resident and Ordinarily Resident (ROR) individual to file an ITR if the individual holds any “asset (including financial interest in any entity) located outside India” as beneficial owner or otherwise.

Similarly, Section 2(11) of the BMA defines “foreign asset” as —

“…an asset (including financial interest in any entity) located outside India, held by an assessee, being a resident other than not ordinarily resident…”

 

The operative phrase in both provisions is identical: “located outside India.” Neither the ITA nor the BMA defines what makes an asset “located outside India.” This is a question of situs — the legal location of an asset — which, under general principles of private international law, is determined by where the asset is physically situated or where the right is enforceable.

 

2. The GIFT City Paradox: Geographically India, Regulatorily Offshore

GIFT City presents a unique regulatory duality that lies at the heart of this debate:

 

Parameter	Position
Physical location	Within India — Gandhinagar, Gujarat
Legal situs of asset	Within Indian territory
FEMA characterisation	Deemed ‘outside India’ / offshore jurisdiction (RBI Circular, March 31, 2015; FEMA (IFSC) Regulations, 2015)
ITA / BMA test for Schedule FA	“Located outside India” — a situs-based determination
CBDT express clarification	None issued as of date

 

GIFT City units are treated as persons resident outside India under FEMA — a purposive regulatory fiction to enable India to compete with offshore financial centres like Singapore, DIFC, and the Cayman Islands. This fiction was reinforced by the RBI’s Seventh Amendment Regulations (October 2025), which explicitly classified IFSC accounts as equivalent to foreign currency accounts “outside India” for FEMA purposes.

However — and this is the critical point — a FEMA regulatory fiction does not, by itself, import into the Income-tax Act. The ITA and the BMA contain their own operative language and, unless Parliament or the CBDT specifically incorporates the FEMA characterisation into the direct tax framework by an express deeming provision, the FEMA fiction cannot be mechanically transplanted to determine Schedule FA obligations.

 

3. The Situs Argument — A Closer Legal Analysis

3.1  RFC Accounts: A Direct Parallel

A useful analogy is the treatment of Resident Foreign Currency (RFC) accounts maintained by returning NRIs at banks in India. RFC accounts are denominated in foreign currency, yet the Schedule FA instructions specifically exclude foreign currency accounts “maintained in India” from the disclosure requirement. The rationale is straightforward: the situs of the account is India, regardless of the currency denomination.

An IFSC Banking Unit account at a GIFT City bank is similarly foreign-currency denominated and held at an institution physically situated within India. The situs argument for exclusion from Schedule FA is structurally identical to the RFC account position.

3.2  The Underlying Asset — the More Decisive Factor

The more analytically sound approach is to look through the GIFT City route and ask: what is the nature and situs of the underlying asset? This yields a cleaner and legally defensible framework:

 

Investment Through GIFT City	Schedule FA Position
Foreign equity shares, overseas ETFs, global mutual funds	Disclosure warranted — underlying asset located outside India
IFSC-registered AIF investing in overseas assets	Disclosure warranted — underlying exposure is to foreign assets
Equity / debt securities of an Indian company listed on India INX / NSE IFSC	Disclosure arguably not required — underlying issuer and asset are Indian
FD / deposit with an IFSC Banking Unit (Indian bank’s IBU)	Debatable — IBU is within India; situs may be regarded as Indian
Units of an IFSC mutual fund investing only in Indian securities	Disclosure arguably not required — no foreign asset exposure

 

The conclusion that follows is that routing an investment through GIFT City does not, by itself, determine the Schedule FA obligation. The analysis must descend to the level of the underlying asset and its situs.

 

4. Our Assessment

Our Comments

There is a genuine and unresolved legal question as to whether investments through GIFT City constitute ‘foreign assets’ under the ITA and the BMA. The statutory test — “located outside India” — is a situs-based test, not a FEMA-characterisation-based test. Since GIFT City is physically within India, assets held there do not automatically satisfy this test merely on account of FEMA’s deeming fiction.

That said, where the underlying asset is demonstrably foreign — overseas equities, global ETFs, foreign currency deposits with foreign counterparties — disclosure in Schedule FA is appropriate and defensible regardless of the GIFT City routing.

The absence of any CBDT circular, ITR instruction, or judicial precedent expressly addressing this question is itself telling. A blanket approach — either disclosing everything or disclosing nothing — is analytically unsound. The correct approach is a case-by-case analysis of the underlying asset, its situs, and the legal ownership structure. Given the severe consequences of non-disclosure under the BMA (₹10 lakh penalty per year under Sections 42 and 43), where any doubt exists, a conservative disclosure posture is prudent pending formal CBDT clarification.

 

5. The Legislative Gap — A CBDT Clarification is Overdue

The FEMA framework has evolved rapidly — the RBI Circular of 2015, the IFSC Regulations, the LRS Circular of July 2024, and the Seventh Amendment Regulations of October 2025 have progressively built a robust offshore characterisation for GIFT City. The direct tax framework, however, has not kept pace.

What is required is a specific CBDT Circular or amendment to the ITR instructions that either:

• Expressly deems GIFT City / IFSC investments as ‘assets located outside India’ for Schedule FA purposes, thereby mandating disclosure; or
• Clarifies that GIFT City investments are outside the scope of Schedule FA (with appropriate carve-outs for underlying foreign assets); or
• At a minimum, provides product-wise or structure-wise guidance on which GIFT City instruments require Schedule FA disclosure.

 

Until such clarification is issued, practitioners are left navigating this compliance question through first principles — and that is neither good for taxpayers nor for the credibility of the GIFT City ecosystem.

 

6. Practical Approach for ITR Filing Season

Suggested Framework for Practitioners

Step 1 — Identify the underlying asset: Determine whether the economic exposure is to a foreign asset (overseas equity, global ETF, foreign currency deposit with a foreign counterparty) or an Indian asset (Indian company’s securities, IFSC-listed Indian instruments).

Step 2 — Apply the situs test: If the underlying asset is located outside India, Schedule FA disclosure is warranted — regardless of GIFT City routing. If the underlying asset is Indian, the mere GIFT City route does not, in our view, trigger Schedule FA.

Step 3 — Determine residential status: Schedule FA applies only to ROR taxpayers. RNOR individuals have no Schedule FA obligation. RNOR status must be computed carefully — a common error among returning NRIs.

Step 4 — Adopt conservative disclosure for borderline cases: Where the nature of the underlying asset is uncertain or mixed (e.g., an IFSC AIF investing both in Indian and foreign securities), a conservative disclosure in Schedule FA is appropriate, with a note in the ITR where possible.

Step 5 — Document the analysis: In the absence of CBDT guidance, maintain a written record of the analysis and the rationale for the disclosure position adopted. This is essential protection in the event of an assessment or penalty notice under the BMA.

 

Conclusion

GIFT City investments do not automatically become ‘foreign assets’ for Schedule FA purposes. The statutory test under the ITA and the BMA is whether the asset is “located outside India” — a situs-based inquiry that cannot be answered solely by reference to the FEMA characterisation of GIFT City as an offshore jurisdiction. The nature of the underlying asset is the decisive factor.

Where the underlying investment is in foreign securities, global funds, or overseas assets, Schedule FA disclosure is clearly appropriate. Where the investment is in Indian instruments merely structured through or listed in GIFT City, the position is arguable and a formal CBDT clarification is needed.

A blanket approach — disclosing all GIFT City investments as foreign assets without analysis, or ignoring Schedule FA entirely — both carry risk. Precision in analysis, documentation of the position, and conservative disclosure where doubt exists is the hallmark of sound professional advice in this area.

 

Guidance on above article on Income Tax by:

 

 

 

 

 

Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo

 

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