For most of the last decade, an Indian founder building a Web3 business, or a fund manager raising a venture vehicle to invest in one, treated the choice of offshore jurisdiction as almost automatic: Cayman or BVI for the fund, Singapore for the holding company, India for the team. That default is now worth re-examining. The International Financial Services Centres Authority (IFSCA) has spent the past two years building a fund management framework, a tokenisation sandbox, and a tax architecture inside Gujarat International Finance Tec-City (GIFT City) that is, on paper, competitive with the traditional offshore stack. Whether it is competitive in practice depends on what the sponsor or founder actually wants to do, and in particular on how much of the strategy touches cryptocurrency or other virtual digital assets (VDAs) directly, as opposed to the equity of companies operating in that space.
1. Why Indian Web3 Businesses and Funds Traditionally Go Offshore
The logic for Cayman, BVI or Singapore has rarely been about tax alone. Global limited partners are more comfortable committing to structures whose governing law, dispute mechanisms and fund documentation are familiar from decades of market practice. USD-denominated closed-ended vehicles need a currency and banking environment where capital calls and distributions do not run into Indian exchange-control friction at every step. Web3 holding companies have typically sat offshore because token issuance and international commercial contracts are easier to execute outside India's domestic regulatory perimeter. None of this reflects hostility to India; it reflects the absence, until recently, of a credible India-linked alternative offering comparable certainty.
2. What GIFT City Changes
GIFT City is not an offshore jurisdiction in the conventional sense. It is a notified Special Economic Zone within Indian territory, and the IFSC located inside it is a distinct financial jurisdiction created by statute, the International Financial Services Centres Authority Act, 2019. The Act consolidated what would otherwise have been fragmented oversight by the RBI, SEBI, IRDAI and PFRDA into a single regulator, IFSCA, which now writes and administers the rules for banking, capital markets, insurance, fund management and fintech activity within the IFSC.
The practical effect is a ring-fenced financial zone, physically in India but functionally separated from the domestic financial and foreign exchange system. Transactions within the IFSC are conducted in permitted foreign currencies, and entities operating there are generally treated as persons resident outside India for a defined set of purposes under FEMA, even though they are Indian-incorporated or Indian-linked. This separation is what allows a GIFT City entity to raise USD capital, hold foreign assets, and deal with international counterparties without the transaction being treated as ordinary domestic Indian financial dealing. It does not mean the entity sits outside Indian law altogether; IFSCA regulation, and Indian tax and company law as modified for the IFSC, continue to apply.
3. Using GIFT City for Fund Structuring
Fund structuring is where GIFT City's proposition is most developed, and it is the area an Indian sponsor should examine first.
The Fund Management Entity framework. Anyone managing pooled money in the IFSC must register with IFSCA as a Fund Management Entity (FME). The IFSCA (Fund Management) Regulations, 2025, which replaced the 2020 regulations, set out three categories: an Authorised FME, a simplified route generally used for single-family offices or for launching Venture Capital Schemes to accredited investors; a Registered FME (Non-Retail), which can launch Restricted Schemes and portfolio management services for sophisticated investors; and a Registered FME (Retail), for schemes open to a broader investor base. A July 2025 amendment introduced a Third-Party Fund Management framework, under which a manager who is not separately registered as an FME can run a scheme through an existing Registered FME's platform, removing the need to build full on-ground substance before a first close.
Scheme types relevant to venture and Web3 strategies. A Venture Capital Scheme must be close-ended, cannot have more than fifty investors, requires a minimum investment of USD 250,000 per investor (accredited investors aside), and must reach a minimum corpus of USD 3 million, reduced from the earlier USD 5 million, within twelve months of the placement memorandum being filed. A Restricted Scheme allows up to 1,000 investors at a USD 150,000 minimum ticket, can be open or close-ended, and is subject to the same USD 3 million minimum corpus. Both are filed with IFSCA as Alternative Investment Funds, broadly analogous to India's domestic AIF regime but denominated and operated in foreign currency.
Participation by Indian and foreign investors. Both can participate in the same scheme. For a foreign investor this is a straightforward subscription. For a resident Indian, the route runs through the Foreign Exchange Management (Overseas Investment) Rules, 2022, which expressly permit a person resident in India, including an unlisted Indian entity or a resident individual, to invest in units issued by an IFSC fund as Overseas Portfolio Investment. This is meaningfully wider than the route for funds set up outside an IFSC, where unlisted Indian entities generally cannot participate on the same footing. Resident individual investment remains subject to the overall Liberalised Remittance Scheme limit.
Investment into foreign and Web3 companies. An IFSC-domiciled AIF can invest into companies incorporated outside India, including Web3 and blockchain infrastructure businesses, subject to the diversification norms in the Fund Management Regulations, such as the limit on concentration in a single portfolio company. The regulations do not extend this permission to direct dealing in cryptocurrencies or other VDAs as an asset class. IFSCA's Revised Global Access framework, notified in August 2025, expressly excludes crypto-assets, and any product referencing cryptocurrency as an underlying, from the definition of permissible financial products in the IFSC, and separately bars such products from being offered to Indian residents at all. A fund investing in the equity of a company that builds blockchain infrastructure or tokenisation tooling is on solid regulatory ground; a fund seeking to hold Bitcoin, Ether or other tokens directly, or run a token trading strategy, is operating in an area IFSCA has not opened up, and sponsors should not assume otherwise merely because the mandate is described as "Web3-focused."
Substance and governance. IFSCA has grown firmer on substance. In mid-2025 it took regulatory action against several FMEs found to have a functional office and key managerial personnel on paper only, without genuine operational presence. A sponsor should budget for a real Principal Officer and Compliance Officer based in GIFT City, proper KYC and AML systems, and ongoing reporting, not a nominee structure.
4. Can GIFT City Work for a Web3 Company Itself?
Fund structuring and operating-company structuring raise different questions, and the two should not be conflated. An IFSC entity is a strong candidate for treasury operations, international fundraising through an IFSC-domiciled holding vehicle, or for a fintech subsidiary providing blockchain, DLT or tokenisation technology services. The IFSCA (TechFin and Ancillary Services) Regulations, 2025, notified in July 2025, created a Certificate of Registration route covering a defined list of TechFin services that expressly includes blockchain, DLT, Web3 and tokenisation infrastructure, a workable and reasonably fast route for a company building the technology layer.
The position changes once the company moves from building tokenisation infrastructure to issuing or managing tokenised assets itself, that is, pooling investor money, issuing tokens representing an underlying asset, or exercising discretion over what the tokens represent. That activity falls outside the TechFin registration and is treated by IFSCA as a financial service, requiring FME registration, capital markets authorisation, or participation in the regulatory sandbox, depending on the structure. A Web3 company that assumes it can operate a token issuance platform under a TechFin certificate will be operating outside its licence.
For founders, the more basic constraint is that GIFT City is not a general substitute for a Singapore or Cayman holding company. Non-financial businesses, including most consumer-facing Web3 applications, cannot simply relocate their commercial operations into the IFSC; only financial services and related fintech activities are permitted there. A founder establishing or investing through an IFSC structure also needs to work through the ordinary FEMA overseas investment analysis, since a resident's contribution to an IFSC vehicle is treated as outbound investment under the Overseas Investment Rules, with applicable reporting and, in some cases, approval requirements, even though the vehicle sits within Indian territory.
5. The Tax Question
GIFT City is not tax free, and describing it that way understates both its genuine advantages and its conditionality. The principal incentive, under Section 80LA of the Income-tax Act (a provision that continues in substance under the Income-tax Act, 2025, which replaced the 1961 Act with effect from 1 April 2026), is a deduction of 100% of business income for any ten consecutive years out of the first fifteen years of an IFSC unit's operation. This is a deduction against otherwise taxable profit, not a blanket exemption, and it sits alongside a concessional 9% Minimum Alternate Tax or Alternate Minimum Tax on book profits in years the deduction is not claimed. A June 2025 CBDT notification separately exempted specified payments to IFSC units from withholding tax, subject to a declaration covering the ten-year exemption window, which improves cash flow for management fee income.
For a fund structured as a Category I or II AIF in the IFSC, the more relevant provisions are the exemptions under Sections 10(4D), 10(4E) and 10(4F), addressing the taxation of the fund, the fund manager, and non-resident investors respectively, designed so a non-resident investing through a properly structured IFSC AIF is not worse off than investing directly. The tax position of the manager, the fund, and the investor need to be analysed separately; they are not the same question.
This framework needs to be kept firmly apart from India's taxation of VDAs directly. Under Section 115BBH, income from the transfer of a virtual digital asset is taxed at a flat 30%, with no deduction for expenses other than cost of acquisition, no set-off of losses, and no carry-forward. Section 194S imposes a 1% withholding obligation on the buyer in most VDA transactions. These provisions attach to the transfer of the asset itself and are not disapplied because the transaction runs through an IFSC vehicle. A fund holding shares in a Web3 company is taxed under the ordinary capital gains and business income framework applicable to its structure. A fund or individual holding and trading tokens directly is taxed under Section 115BBH regardless of where the holding entity sits. Conflating the two, or assuming IFSC tax exemptions extend to direct VDA gains, is a common and costly error.
6. GIFT City vs Cayman, BVI and Singapore
Factor
GIFT City
Cayman/BVI
Singapore
Indian regulatory/FEMA interface
Structured route for resident Indian investment via OI Rules Schedule V; substance and reporting obligations apply
Resident Indian investment is possible but generally more constrained, routed as ODI/OPI outside the IFSC concession, with tighter limits for unlisted entities
Similar constraints to Cayman/BVI for resident Indian participation
Access to international investors
Growing, but institutional LP familiarity is still developing
Deep, decades-long institutional acceptance globally
Strong within Asia-Pacific; growing globally
Fund structuring
AIF-style regime under FME Regulations, 2025; USD 3 million minimum corpus; third-party management route now available
Mature ELP/exempted company toolkit; minimal statutory minimums; fastest and cheapest to set up
VCC regime with statutory segregation; requires a MAS-licensed or registered manager
Tax position
80LA deduction (10 of 15 years), 9% MAT/AMT, targeted exemptions for non-resident AIF investors; not a blanket exemption
No direct or indirect tax; increasing economic substance obligations since 2019
17% headline corporate rate, but 13O/13U regimes can materially reduce fund-level tax subject to substance conditions
Web3/digital-asset flexibility
Equity investment in Web3 companies is workable; direct crypto-asset dealing and offering to Indian residents is expressly restricted
VASP Act licensing (fully in force since April 2025) permits direct virtual asset business subject to CIMA authorisation
MAS licensing permits digital asset fund management, but the regulatory bar for crypto-specific activity is high
Investor familiarity and market acceptance
Improving quickly but still a newer proposition for global institutional LPs
The default and most familiar choice for globally distributed institutional capital
Well accepted, particularly where the manager or investor base has genuine regional ties
None of the four jurisdictions wins outright. Cayman remains the more natural home for a fund raising from a globally diversified institutional investor base with no particular India connection, precisely because of the depth of market familiarity with its documentation and case law. Singapore continues to make sense where the business has real operational substance in Southeast Asia, wants MAS-licensed credibility, or needs the tax treaty network Singapore offers. GIFT City's comparative advantage is sharpest where the sponsor, a meaningful share of the investor base, or the underlying portfolio companies have an India connection, since the FEMA-facilitated route for resident Indian participation and the IFSC's proximity to Indian regulatory and banking relationships are not replicated offshore.
7. A Practical Example
Consider an Indian fund manager seeking to raise a USD-denominated fund from a mix of Indian and foreign investors, to invest in Web3 and blockchain companies both in India and abroad. Structured through GIFT City, the manager would register as an FME, most likely a Registered FME (Non-Retail), and launch a Restricted Scheme or Venture Capital Scheme with a minimum corpus of USD 3 million. Indian investors could participate under the OI Rules as Overseas Portfolio Investment in the IFSC vehicle, while foreign investors subscribe directly. The fund would deploy capital into the equity or convertible instruments of portfolio companies, subject to IFSCA's diversification and related-party restrictions, and the manager would need genuine operational presence in GIFT City rather than a nominal office.
If instead the fund intended to acquire tokens or cryptocurrencies directly, whether as a treasury strategy or an investment thesis in its own right, the analysis changes substantially. IFSCA's current framework does not extend to a registered fund scheme dealing in crypto-assets, and its 2025 Global Access rules specifically bar offering crypto-referencing products to Indian residents. A manager with that mandate would need to look outside the IFSC, most likely to a VASP-licensed Cayman structure, and would then face the full weight of Section 115BBH on any Indian-resident investor's share of gains attributable to the underlying VDA transactions, regardless of the offshore wrapper.
8. Conclusion: Should Indian Businesses Look at GIFT City First?
GIFT City has not replaced Cayman, BVI or Singapore, and it is not designed to. What has changed is that an Indian sponsor or company now has a genuine, India-linked alternative that did not meaningfully exist five years ago, and it deserves evaluation before defaulting to an offshore structure by habit. For a fund manager whose investor base, sponsor team, or portfolio companies have significant India connectivity, and whose strategy is to invest in the securities of Web3 and blockchain businesses rather than hold or trade digital assets directly, GIFT City is now a serious contender, supported by a workable FME framework, an improving tax position, and a FEMA route that treats IFSC participation more favourably than offshore participation for resident Indian investors. For a business or fund whose core activity is direct dealing in cryptocurrencies or VDAs, whose investor base is globally distributed with limited India connection, or whose commercial operations genuinely sit in Southeast Asia, an established offshore jurisdiction remains the better fit, at least until IFSCA's regulatory perimeter for digital assets develops further. The right answer will generally turn on a careful structuring exercise rather than a jurisdictional default in either direction.
Fathom Legal advises Indian and international clients on GIFT City structuring, fund formation, and Web3 regulatory matters. For a structuring discussion tailored to your specific fact pattern, reach out to our IFSC and fintech practice group.
This article is intended as a general overview of a developing regulatory area and does not constitute legal or tax advice. Specific structuring decisions should be made in consultation with counsel qualified in IFSCA regulation, FEMA and Indian tax law.