What an IFSC banking unit (IBU) actually is
GIFT City — Gujarat International Finance Tec-City — is India's first International Financial Services Centre (IFSC), located in Gandhinagar. It was operationalised in 2015 as a designated IFSC under the Special Economic Zones Act 2005, and since 2020 is regulated by the International Financial Services Centres Authority (IFSCA) — a unified regulator covering banking, securities, insurance, and pensions within the IFSC.
Major Indian banks operate IFSC Banking Units (IBUs) inside GIFT City: HDFC IBU, ICICI IBU, SBI IBU, Kotak IBU, Axis IBU, Federal IBU, IDFC FIRST IBU, and several foreign banks including Standard Chartered, Citi, Bank of America, J.P. Morgan, and Deutsche Bank. An IBU is a branch of the parent bank, but is licensed and regulated by IFSCA — not by RBI in the usual mainland sense.
Critically, an IBU is treated as a person resident OUTSIDE India under FEMA, and as an Offshore Banking Unit under Section 2(u) of the SEZ Act 2005. This 'deemed-offshore' status is what unlocks the tax exemption for non-resident depositors. From your perspective as an NRI, depositing into an IBU is operationally identical to depositing into a foreign bank — you're putting money into a banking unit that the Indian tax code treats as outside Indian territory.
Section 10(15)(viii) — the operative tax exemption
Section 10(15)(viii) of the Income-tax Act exempts: 'any income by way of interest received by a non-resident or a person who is not ordinarily resident in India on a deposit made on or after the 1st day of April, 2005, in an Offshore Banking Unit referred to in clause (u) of section 2 of the Special Economic Zones Act, 2005'.
Three conditions for the exemption:
1. The depositor is a non-resident or RNOR — under Section 6 of the Income-tax Act. The exemption ends the day you become ROR.
2. The deposit was made on or after 1 April 2005 — the cutoff date in the section. All current GIFT City IFSC deposits are post-2015, so this is automatic.
3. The deposit is in an Offshore Banking Unit under SEZ Act Section 2(u). All IBUs in GIFT City qualify by definition.
The exemption is at-source: the IBU does not deduct TDS on interest credits to a non-resident or RNOR depositor. Section 197A operationalises the no-TDS treatment.
What this means in plain terms: Indian tax on FCY FD interest in GIFT City IBU = zero, for any NRI / RNOR. No Section 195 withholding. No surcharge. No cess. No DTAA claim needed (because there's no domestic tax to reduce).
Note: Section 10(15)(viii) covers FCY deposits specifically. INR deposits in IBUs (where offered) follow different rules — IBUs primarily deal in foreign currency by design.
GIFT City IBU FCY FD vs FCNR (B) — the operational comparison
Both products give NRIs tax-free FCY interest from an Indian bank. They differ in the underlying regulatory wrapper:
| Feature | FCNR (B) | GIFT City IBU FCY FD | | --- | --- | --- | | Regulator | RBI under FEMA Notification 5(R) | IFSCA under IFSCA Act 2019 | | Tax exemption section | Section 10(15)(iv)(fa) | Section 10(15)(viii) | | Banking unit location | Mainland Indian bank branch | IFSC Banking Unit in GIFT City | | Rate cap | RBI-imposed (SOFR/SONIA + ~250-300 bps) | IFSCA-light; market-determined within IBU's commercial discretion | | Currencies | USD/GBP/EUR/JPY/CAD/AUD/CHF/SGD/HKD | Mostly USD, GBP, EUR; some IBUs offer JPY, SGD | | Tenure | 1, 2, 3, 4, or 5 years | Typically 6 months to 5 years (IBU-specific) | | Premature closure | No interest if closed before 1 year (RBI rule) | IBU-specific; some allow penalty-rate interest below 1 year | | Repatriability | Fully repatriable | Fully repatriable (deposit was in foreign currency from the start) | | Account opening | KYC at any bank branch in India or via NRI portal | Must open through IBU's onboarding (KYC standards align with IFSCA) | | Typical USD 5y rate (2026) | 4.5-5.5% | 5.0-5.8% (slight premium reflecting absence of RBI cap) |
The principal advantages of IBU FCY FD over FCNR (B):
• Slightly higher rates because IFSCA doesn't cap them as tightly as RBI caps FCNR • Foreign-flavoured tax position (Section 10(15)(viii)) — clean for those with US/UK home-country reporting overhead • IBU is FEMA-deemed-offshore; some find this provides cleaner audit trails for cross-border transfers
The principal advantages of FCNR (B) over IBU FCY FD:
• Wider currency menu (9 currencies vs ~3-4 in most IBUs) • More banks offering it (every major Indian bank has FCNR; IBU presence is concentrated in larger banks) • Easier KYC for NRIs already banking with a bank's mainland NRI branch — adding FCNR is a tweak; IBU often requires fresh onboarding
For most NRIs, the choice comes down to: rate spread vs onboarding friction. If your existing bank has an IBU and the rate spread is 30-50 bps over their FCNR rate, the IBU path is worth the extra paperwork.
Eligibility, account opening, and source-of-funds
Who can hold an IBU FCY FD: any non-resident or RNOR under the Income-tax Act / FEMA. NRIs, OCIs, PIOs all qualify. The eligibility test is the same as for FCNR / NRE.
KYC for IBU onboarding: IFSCA requires KYC consistent with international standards — passport, visa or work permit, overseas address proof (utility bill or bank statement), PAN (for tax reporting purposes), and a recent photograph. Most IBUs offer fully digital onboarding with video-KYC; some still require a one-time in-person verification at the IBU's GIFT City office or designated NRI desk.
Source of funds: the deposit must be funded by:
• Inward remittance from outside India in foreign currency (the cleanest path) • Transfer from existing FCNR account (already in foreign currency — no FX leg) • Transfer from another IBU FCY account or external offshore account • Transfer from NRE involves an INR-to-FCY conversion at the IBU's FX rate at the time of deposit (operationally allowed by most IBUs but adds spread cost; not a clean path) • Transfer from NRO is generally not directly accepted by IBUs because NRO holds INR-denominated Indian-source income that doesn't fit the offshore-flavour discipline; you'd need to repatriate from NRO to an offshore account first, then re-route inward to the IBU
The source-of-funds discipline matters: depositing money into an IBU FCY FD from an NRO account would breach the offshore-status premise on which Section 10(15)(viii) exemption is built.
Joint holdings: allowed with another NR or with a resident close relative on Either or Survivor / Former or Survivor basis (similar to NRE / FCNR rules). The NR must be the primary holder. The resident joint holder cannot operate during the NR's lifetime.
FEMA framework for IFSC — different from mainland
Key FEMA principle: IFSC banking units are treated as persons resident outside India under FEMA. Funds in an IBU FCY account are not 'in India' for FEMA purposes — they're in a deemed-offshore zone.
This simplifies repatriation:
• No USD 1 million per FY cap on outbound transfers from IBU FCY accounts. The cap is a mainland NRO restriction; IBU funds are technically already offshore. • No Form 15CA / 15CB required for outflows from IBU FCY accounts (because there's no taxable Indian income to certify — the interest is exempt, and the principal didn't originate from India). • Inward remittance is unconstrained — an NRI can move foreign currency from any offshore source into an IBU FCY account without LRS-style limits (LRS applies to Indian residents going abroad; IBU receives money from non-residents).
Operational note: IBUs operate in foreign currency end-to-end. The deposit is in USD/GBP/EUR; interest is paid in the same currency; redemption pays out in the same currency. If you want to convert IBU FCY funds to INR (for use in India), you'd transfer to an NRE / NRO account on the mainland — at which point mainland FEMA rules apply.
Banks with active IBUs in GIFT City
As of 2026 the principal IBUs offering FCY FDs to NRIs in GIFT City include:
Indian banks: • State Bank of India (SBI) IBU — largest, deepest currency menu • HDFC Bank IBU • ICICI Bank IBU • Kotak Mahindra Bank IBU • Axis Bank IBU • IDFC FIRST Bank IBU • Federal Bank IBU • Yes Bank IBU • Bank of Baroda IBU • IDBI Bank IBU
Foreign banks operating IBUs in GIFT City: • Standard Chartered • Citi • Bank of America • J.P. Morgan • Deutsche Bank • Barclays
Not every IBU offers every product to every NRI category. Smaller IBUs may focus on corporate banking and not retail FCY FDs. The largest Indian bank IBUs (SBI, HDFC, ICICI) are the safest defaults for a retail NRI looking for FCY FD products. Foreign-bank IBUs are usually onboarding institutional clients, not retail NRIs.
Rate comparison shopping: rates differ by 20-50 bps across IBUs for the same currency / tenure. Worth getting quotes from 2-3 IBUs before committing — there's no rate-cap-induced uniformity like in mainland FCNR.
Where this fits — capital preservation, top tier
GIFT City IBU FCY FDs are a capital-preservation product with three advantages over offshore alternatives:
• Tax cleaner than home-country savings. US savings interest at a US bank gets taxed federally (and by state); IBU FCY FD interest is exempt in India, and your home-country tax position depends on whether you remit / repatriate.
• Higher rate than typical home-country USD savings. US high-yield savings ~4.0-4.5% (2026); IBU USD FD 5.0-5.8% for 5-year tenure. The 100-130 bps premium reflects the IBU funding-cost arbitrage available within IFSCA-regulated frameworks.
• No INR risk — unlike NRE FDs, the deposit is in foreign currency throughout.
Best for:
• US / UK NRIs with significant USD/GBP cash positions who want non-zero yield with tax-clean reporting (vs the wash of NRE INR FDs after currency drift). FCNR is the closer-in alternative; IBU FCY adds a small rate kicker over FCNR. • High-net-worth NRIs parking $500K-$5M in liquid USD with multi-year horizons. The rate spread × principal × tenure is meaningful at scale. • Returning NRIs in their RNOR window — Section 10(15)(viii) exemption continues for RNOR depositors, just like FCNR. RFC-equivalent pathway on becoming ROR.
Worst for:
• Gulf NRIs with low residence-state tax burden. The IBU vs NRE FD comparison usually favours NRE on yield (7%+ INR vs 5-6% USD); INR depreciation eats some of the gap but Gulf NRIs typically don't need the FX hedging that drives others to USD products. • Sub-USD-100K depositors. IBU minimums are typically USD 10K-50K; KYC overhead is real. For smaller positions, FCNR or NRE is operationally lighter. • Anyone needing Indian-rupee liquidity in India. IBU is FCY-only; converting to INR for Indian use means routing back to mainland NRO/NRE — which negates the offshore-flavoured tax positioning.
Compared to other capital-preservation NRI products:
| Product | India tax | Currency risk | Typical yield | Notes | | --- | --- | --- | --- | --- | | GIFT City IBU FCY FD | Zero (Section 10(15)(viii)) | None (FCY) | 5.0-5.8% USD 5y | IBU rate premium over FCNR | | FCNR (B) | Zero (Section 10(15)(iv)(fa)) | None (FCY) | 4.5-5.5% USD 5y | RBI-capped; 9 currencies | | NRE FD | Zero (Section 10(4)(ii)) | INR | 6.5-7.5% INR | Highest INR yield; FX risk | | Tax-free PSU bonds | Zero (Section 10(15)(iv)(h)) | INR | 5-6.5% YTM | No new issuances post-2016 |
For a sophisticated NRI building a capital-preservation tier, the typical mix is FCNR (or IBU FCY FD) for foreign-currency core + NRE FDs for INR yield premium + tax-free PSU bonds for very long-duration tax-free yield. Equity MFs sit on a separate growth allocation.