For decades, the story of foreign capital entering India had a familiar opening line: it began somewhere else—usually in Mauritius. Between 2000 and 2024, Mauritius accounted for nearly one-fourth of India’s foreign direct investment—about $179 billion. It was India’s largest single-country source.
The island nation was a legal address through which global capital reached India. An entire ecosystem grew around one idea: the right tax treaty could transform the returns on investing in India.
That idea is fading. As treaties narrowed and scrutiny intensified, Mauritius lost its shine. Another island nation, Singapore, has overtaken it in recent quarters. But the more interesting development is that smart capital is no longer looking for overseas islands.
The successor is a stretch of reclaimed land on the banks of the Sabarmati: the Gujarat International Finance Tec-City (Gift City) and the International Financial Services Centre (IFSC) within it. And what it offers is fundamentally different from the model it is replacing.
The old structures depended on borrowed advantages—a treaty, a residence certificate and the tax relief they promised. Gift City offers something that need not be borrowed at all: a tax outcome written directly into Indian law.
The Gift City proposition is particularly compelling for foreign investors trading listed Indian derivatives. A non-resident can establish a Category III Alternative Investment Fund (AIF) in Gift City, obtain foreign portfolio investor (FPI) registration and trade futures and options (F&O) on the NSE and BSE.
Profits from such trading are exempt under India’s own domestic tax law, rather than a treaty or any concession granted by another jurisdiction.
For derivative trading strategies, this is transformative. F&O trading is high-volume and margin-driven; it often invites tax disputes over whether gains are capital or business income and whether an offshore vehicle genuinely qualifies for treaty relief. The Category III IFSC fund sidesteps all of it. Indian law itself treats the fund’s securities as capital assets and exempts trading income, so the two questions that haunted the old structures fall away.
Since such a fund takes no recourse to any treaty, an entire layer of controversy disappears—no treaty shopping, no principal purpose test, no limitation of benefits clause and no debate over treaty substance. India’s General Anti-Avoidance Rule (GAAR) framework goes further by specifically carving out FPIs that do not resort to any treaty benefit, placing them beyond the reach of GAAR itself. The structure rests entirely on Indian law, instead of a bargain struck with another country.
Gift’s substance requirements are deliberately light: a small office and two or three professionals are generally enough to run a fund. And since 2025, even that can be outsourced—an overseas manager can simply plug into an independent, locally licensed platform.
In practice, the local Gift entity provides the regulated presence, while the offshore investment team drives investment decisions using sophisticated tools that enable those calls to be attributed to the Gift platform. In that sense, it resembles Mauritius—arguably with even lighter substance, but within India’s own legal perimeter.
Capital is responding. By March 2026, cumulative commitments to Gift funds had crossed $39 billion, according to the International Financial Services Centres Authority. Even India’s benchmark Nifty derivatives, long traded on Singapore’s exchange, have since come home to Gift City.
As capital pours into Gift City, substance matters more than ever. The framework may not demand a heavy on-ground presence, but that is not the same as substance being optional. Courts can still apply substance-over-form principles even where statutory GAAR does not apply (often described as ‘judicial GAAR’).
The Supreme Court’s reasoning in the case of Tiger Global is a good example. Today, judicial GAAR poses little threat to funds in Gift City because the platform is a stated national priority, and is promoted, backed and actively encouraged by the government.
But such priorities are not permanent. Should the policy mood shift, the same substance-over-form reasoning that unsettled treaty structures could, in principle, be turned towards even a government-favoured platform. The exemption is statutory but the goodwill around it is political. Wise investors should invest on the basis of genuine substance rather than relying on the political disposition.
The lesson is simple. Gift City rewards those who bring real activity onshore—real managers, real decisions and real risk. It punishes the letterbox.
So, is Gift City the new Mauritius? The question understates it. Mauritius was a clever fix for an era when India taxed foreign capital heavily. Gift City reflects India’s decision that global capital should no longer need another jurisdiction to invest tax-efficiently in India. It reflects an India that has chosen to compete.
Mauritius’s biggest competitor may no longer be another island. It may simply be India itself.
The author is head of tax, BTG Advaya.