NEW DELHI – In a decisive move to cement its position as a global financial powerhouse, India has announced a significant expansion of fiscal incentives for its flagship international finance hub. As part of the Union Budget 2026-27 presented on Sunday, the government proposed doubling the tax holiday period for businesses operating in the Gujarat International Finance Tec-City (GIFT City). The new policy extends the tax-free window to 20 consecutive years, a substantial increase designed to attract long-term foreign capital and rival established hubs like Dubai and Singapore.

The announcement comes at a critical time when the world’s fifth-largest economy is aggressively seeking to integrate with global markets and boost its GDP growth. By offering one of the most competitive tax regimes in the region, New Delhi aims to ease the concerns of global banks, asset managers, and reinsurers regarding the longevity of fiscal benefits. The move is expected to accelerate the onshoring of financial services that have traditionally operated out of offshore jurisdictions.

Finance Minister Nirmala Sitharaman, while presenting the budget, emphasized the government’s commitment to providing “long-term tax certainty” to investors. According to the budget documents released on February 1, 2026, the extended holiday will allow eligible units to claim a 100% tax exemption for 20 years within a 25-year block. This replaces the previous regime, which offered a 10-year holiday within a 15-year period, marking a major structural shift in India’s approach to international finance.

A New Era for GIFT City

The Gujarat International Finance Tec-City, India’s first operational smart city and International Financial Services Centre (IFSC), has been central to the Prime Minister’s vision of bringing global financial transactions to Indian shores. The doubling of the tax holiday is seen as a direct response to feedback from international stakeholders who sought greater stability for their long-term investment horizons. According to Bloomberg, the proposal also stipulates that following the 20-year tax-free period, companies will be subject to a flat tax rate of 15%, which remains significantly lower than the standard corporate tax rates applicable in the domestic tariff area.

Industry experts have welcomed the move, noting that it aligns India’s incentives with those of zero-tax jurisdictions while offering the added advantage of access to a massive domestic economy. “This will encourage both global and domestic institutions to structure international financial services business within India’s own financial hub,” stated Dipesh Shah, an executive director at the GIFT City regulator, in a statement to the press. The extension is particularly targeted at capital-intensive sectors such as aircraft leasing, ship leasing, and global reinsurance, where business cycles are long and tax stability is paramount.

Strategic Move for Global Capital

The strategic intent behind this policy is to arrest the export of financial markets and deepen trade linkages. For years, Indian companies have turned to hubs like London or Singapore for raising capital or hedging risks. By enhancing the attractiveness of the IFSC, the government hopes to repatriate these activities. The extended tax holiday is expected to be a game-changer for foreign banks and asset management companies (AMCs) that have been hesitant to set up large-scale operations due to the fear of policy reversal or expiring benefits.

Furthermore, the budget included provisions to attract data centers to the region, with reports indicating a tax holiday for foreign data center operators until 2047. This aligns with the broader push to modernize India’s digital infrastructure and support the booming fintech sector. As global inflation pressures ease and central banks pivot toward monetary easing, emerging markets like India are positioning themselves to capture the next wave of cross-border investment flows.

Market Reaction and Broader Economic Context

While the news for GIFT City was overwhelmingly positive, the broader reaction in the Indian stocks markets was mixed due to other budgetary measures. The benchmark indices, Sensex and Nifty, experienced volatility following the announcement of a hike in the Securities Transaction Tax (STT) on derivatives. Traders expressed concern that the higher levy could dampen speculative volumes. However, analysts argue that the structural reforms for GIFT City will have a more lasting positive impact on the financial ecosystem than the short-term sentiment hit from the STT hike.

The budget also maintained a focus on fiscal consolidation while ramping up infrastructure spending to $130 billion. This delicate balancing act is aimed at sustaining high growth rates without overheating the economy. By incentivizing the financial sector, the government is betting that a robust flow of foreign direct investment (FDI) will help bridge the current account deficit and stabilize the rupee, thereby insulating the economy from external shocks.

Conclusion

The decision to double the tax holiday for GIFT City to 20 years represents a bold declaration of intent by the Indian government. It signals a shift from tentative experimentation to a confident, long-term commitment to becoming a global financial hub. As international businesses evaluate their strategies for the latter half of the decade, India’s enhanced fiscal incentives, combined with its economic resilience, present a compelling case for relocating high-value financial operations to Gujarat. This policy not only strengthens the IFSC’s competitive edge but also integrates the Indian economy more deeply into the fabric of global finance.

Frequently Asked Questions