A S BANKA ADVISORS

GIFT City has stopped being a talking point and started being a decision. When a founder plans an offshore-friendly fund, when a family office builds a global book, or when a lessor picks a home for an aircraft or ship leasing platform, the International Financial Services Centre (IFSC) inside GIFT City is now on the table by default. The question is no longer whether the incentive exists. It is whether a specific fund or a specific payment actually fits inside the notified conditions. A run of Central Board of Direct Taxes (CBDT) notifications through 2026 has made that mapping cleaner, and the most recent of them, Notification 94/2026, is the reason this is worth a fresh memo to your clients.

What Notification 94/2026 Actually Did

On 21 July 2026 the CBDT issued Notification No. 94/2026, published as G.S.R. 646(E), and titled it the Income-tax (Second Amendment) Rules, 2026. It came into force on the date of publication. The change is narrow on its face but consequential in practice: clause (c) of Rule 157, sub-rule (5) of the Income-tax Rules, 2026, was substituted with a wider definition of the term “specified fund”.

Why does one clause carry so much weight? Because “specified fund” is the gateway term for the concessional fund taxation regime. Whether a fund and its non-resident investors sit inside the favourable framework or outside it turns on this single definition. Historically, a GIFT City fund manager could find themselves arguing that an IFSCA-regulated vehicle qualified. After 94/2026, that argument is largely settled at the definition stage.

Read directly from the substituted clause, a “specified fund” now covers three limbs. First, a fund set up in India as a trust, company, LLP or body corporate that is registered as a Category I or Category II Alternative Investment Fund (AIF) and regulated under the SEBI (Alternative Investment Funds) Regulations, 2012. Second, a fund regulated under the IFSCA (Fund Management) Regulations, 2022 and located in any IFSC. Third, any fund referred to in Schedule VI, Note 1(g) of the Income-tax Act, 2025. In plain advisory terms: an IFSCA registration under the 2022 Fund Management Regulations, coupled with an IFSC location, now maps cleanly onto specified-fund status instead of leaving you to make the case.

The Two Withholding Reliefs Sitting Underneath

The classification fix does not stand alone. Earlier in 2026 the CBDT removed two pieces of withholding-tax friction that used to make the IFSC route heavier on cash flow than it needed to be.

Under CBDT Notification 80/2026, specified categories of payment made to units in an IFSC are relieved from tax deduction at source. This is a real working-capital benefit for anyone routing interest, professional fees or similar payments to an IFSC banking unit, finance company or fund vehicle. The important caveat for advisors: the relief is mapped to specific payee categories, not granted as a blanket exemption. Before you tell a client to stop deducting, confirm that both the payee category and the payment type fall inside the notified list.

Separately, lease rent paid to an IFSC unit engaged in aircraft or ship leasing is not subject to TDS in the notified cases. The IFSC is now the default domestic base for aircraft and ship leasing, and this relief removes a cash drag that once made an offshore leasing structure look more attractive. For a lessor deciding where to domicile a platform, nil TDS on lease rent is one of the strongest arguments for GIFT City over a traditional offshore centre. We covered that relief in detail here: No TDS on aircraft and ship lease rent to IFSC units.

The Backbone Nobody Should Forget: Section 80LA

None of this matters without the headline incentive. The reason a fund manager, banking unit or lessor sets up in the IFSC in the first place is the profit-linked deduction under Section 80LA. In broad terms, an eligible IFSC unit can claim a 100% deduction on its eligible income for 10 consecutive assessment years out of the first 15, provided the income is received in convertible foreign exchange and the unit meets the operating conditions. The concessional fund regime and the two withholding reliefs are what make that holiday practically capturable, by cutting the leakage that would otherwise erode the exempt income before it reaches the investor.

One drafting discipline matters here. The Income-tax Act, 2025 is in force from 1 April 2026 and carries the IFSC-unit deduction forward. When you cite the deduction in a fresh AY 2026-27 opinion, refer to the corresponding provision under the 2025 Act and confirm the current section reference against the primary statute rather than reusing an older section number out of habit. Citing the concept is safe; citing a stale section number is how a clean memo picks up an avoidable error.

How We Read This for Different Clients

• Fund managers: Confirm your vehicle meets the new Rule 157(5)(c) test. IFSCA (Fund Management) Regulations 2022 registration plus an IFSC location now qualifies expressly, so keep the registration certificate on file as evidence of specified-fund status.
• CAs and advisors: Refresh client memos. The gateway is wider and two TDS reliefs reduce withholding, but both reliefs are category-specific. Verify the payee-category and payment-type conditions before applying either.
• Aircraft and ship lessors: Model the GIFT City leasing platform with nil TDS on lease rent and the 80LA holiday, then compare it honestly against your current offshore base.
• Founders and family offices: The IFSC fund route is now a cleaner base for a global book. The classification uncertainty that used to require a private ruling has been materially reduced.
• Category III AIFs: A caution. The substituted Rule 157(5)(c) speaks to Category I and II AIFs and IFSCA-regulated funds. The tax treatment of Category III AIFs in an IFSC runs through a separate set of provisions, so do not read 94/2026 as settling the Category III position.

A Short Checklist Before You Rely on the Regime

1. Confirm registration: Category I or II AIF under SEBI (AIF) Regulations 2012, or a fund under IFSCA (Fund Management) Regulations 2022 located in an IFSC.
2. Map the fund against Rule 157(5)(c) as substituted by Notification 94/2026, and retain the registration certificate as evidence of specified-fund status.
3. Before switching off TDS on any IFSC payment, check the payee category and payment type against Notification 80/2026 and the aircraft and ship lease notifications.
4. Verify the current Section 80LA-equivalent provision and its conditions under the Income-tax Act 2025 for any AY 2026-27 position.
5. Ensure eligible income is received in convertible foreign exchange, which is a condition of the 80LA holiday.

The Bottom Line for Your Structure

The GIFT City IFSC story in 2026 is one of friction removal. A wider “specified fund” definition, two withholding-tax reliefs, and a stable Section 80LA holiday together make the IFSC a more defensible base than it was a year ago. The advisory work has shifted. It is no longer about proving the incentive is real; it is about confirming that a particular fund vehicle or a particular payment fits inside the notified conditions. Get that mapping right and the 2026 architecture is genuinely usable. Get it wrong and you lose the very reliefs that justified the structure.

Planning a fund, a leasing platform or a unit in GIFT City IFSC, and want to know exactly which reliefs your structure qualifies for? We map your vehicle against the 2026 specified-fund definition and the withholding-tax reliefs before you commit. Get expert guidance: book a quick call. CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited.

Reference note: CBDT Notification No. 94/2026, G.S.R. 646(E), dated 21 July 2026, made under the Income-tax Act, 2025, was read as the primary instrument for the substituted Rule 157(5)(c). Section 80LA is cited at concept level; confirm the corresponding provision and conditions under the Income-tax Act 2025 before relying on a specific section reference for an AY 2026-27 position. This article is general information, not legal or tax advice; verify every position against the primary CBDT notifications and consult a qualified professional before acting.

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