Should you invest through GIFT City or overseas directly? Which option makes more sense for you

As Indian investors increasingly look beyond domestic markets for diversification, global investing is becoming part of many portfolio strategies. A depreciating rupee, access to global companies and the search for broader growth opportunities are pushing investors to allocate capital overseas.

Today, investors broadly have two routes: investing directly in foreign markets under the Liberalised Remittance Scheme (LRS), or using Gujarat International Finance Tec-City (GIFT City), India’s International Financial Services Centre (IFSC). While both provide access to international assets, taxation, costs and compliance requirements can vary significantly.

Here is a closer look at what each route offers and which type of investor each may suit.

Route 1: Direct Global Investing through LRS

Under the Reserve Bank of India’s Liberalised Remittance Scheme, resident Indians can remit up to $250,000 per financial year overseas for investments and other permitted purposes.

This route allows investors to directly buy foreign stocks, ETFs and international assets through overseas brokerages or investing platforms.

However, taxation can become relatively complex.

For foreign shares held for over 24 months, gains qualify as long-term capital gains (LTCG) and are taxed at 12.5% under Section 112. Holdings sold within 24 months attract short-term capital gains tax based on an individual's income tax slab.

Dividend income from foreign companies is taxable under “Income from Other Sources” and taxed according to the investor's applicable slab rate.

Another important factor is Tax Collected at Source (TCS). Investments through LRS exceeding ₹10 lakh may attract TCS. While remittances for education and medical purposes have lower rates, overseas investment remittances can attract 20% TCS, although this amount can later be adjusted against tax liability during ITR filing.

Investors also face additional compliance requirements, including reporting foreign assets under Schedule FA, Schedule FSI and capital gains schedules in income tax returns.

Route 2: Investing through GIFT City

GIFT City operates as an International Financial Services Centre and enjoys a special regulatory and tax structure under Indian laws.

For many investors, the biggest attraction is tax efficiency.

Transactions conducted on IFSC exchanges are exempt from Securities Transaction Tax (STT), stamp duty and GST. Certain investments and fund structures may also qualify for capital gains exemptions depending on the instrument used.

Interest earned on foreign currency deposits held with IFSC banking units can receive tax exemptions.

Some IFSC-based structures also provide tax benefits on dividends and specific investment instruments, especially for non-resident investors.

According to Dev Sampat, Co-founder, Dovetail Group: "GIFT can accept LRS & OPI funds, while direct global investment is only under LRS. Usually one invests through GIFT City via a fund route; while direct investments from India are undertaken into underlying securities directly. When you invest directly, a tax impact is instantaneous on sale, while at GIFT taxation is determined depending on the fund structure."

Comparing GIFT City vs Direct Investing

Direct Global Investing offers direct ownership of overseas stocks but may involve higher compliance, brokerage costs, and TCS implications. GIFT City investments are largely fund-based and can offer simpler structures with potential tax and operational advantages, though costs depend on the product structure.

Which platform should you choose?

Investors seeking direct ownership and wider global access may prefer overseas investing through LRS. Those prioritising tax efficiency and structured investing may find GIFT City more attractive.

The decision ultimately depends on investment size, tax profile, residency status and preferred instruments.