Budget 2026 Resets GIFT City Economics for Banks with 20-Year IBU Tax Holiday

India’s Union Budget 2026 proposes a 20-year tax holiday within a 25-year block for International Banking Units (IBUs) in GIFT City, followed by a concessional 15 percent tax rate. The reform restores parity for early domestic entrants, improves long-term return visibility for global banks, and signals India’s intent to position GIFT City as a permanent international financial hub.

India’s Union Budget 2026-27 has delivered a meaningful reset for banks operating out of GIFT City, extending the tax holiday available to International Banking Units (IBUs) from 10 years within 15 to 20 years within a 25-year block – with post-tax holiday income proposed to be taxed at a concessional 15 percent.

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India's Union Budget 2026-27 Highlights

For early domestic entrants such as the State Bank of India, this change is particularly material. Several public sector lenders established IBUs in GIFT City as early as 2015 and were approaching the end of their original exemption window, placing them at a relative disadvantage versus newer foreign entrants. The extended framework effectively levels the playing field while restoring long-term visibility on returns.

As of today, 35 banks operate in GIFT City, collectively managing over US$10 billion in assets and holding US$7.9 billion in deposits – a scale that signals the IFSC’s transition from pilot phase to operational maturity.

Budget 2026 also refines the deemed dividend framework for IFSC entities. While earlier rules exempted certain inter-group loans involving IFSC finance units, the revised provisions now clearly define eligible group entities and restrict the benefit to entities in notified foreign jurisdictions. The proposed change is aimed at closing loopholes while preserving flexibility for genuine treasury and intra-group funding activities underling that GIFT City incentives are intended to support real financial operations rather than artificial tax structuring.

Budget 2026 and GIFT City tax holiday: Key takeaways

From tax arbitrage to lifecycle certainty: The shift from a front-loaded exemption to a longer, more predictable tax horizon changes the economics of operating from GIFT City. For global banks, fund managers, and fintech firms, this supports sustainable balance-sheet planning, talent localization, and platform investments rather than short-term tax optimization.

Protection against artificial restructuring: The Finance Bill 2026 makes clear that new IBUs commencing after April 1, 2026, will qualify for deductions only if they are not formed through demergers or reconstruction. This closes loopholes while reinforcing regulatory intent: GIFT City is meant for genuine capacity building, not corporate reshuffling.

A signal of permanence: By pairing a 20-year holiday with a reduced steady-state tax rate, India is positioning GIFT City as a permanent onshore international financial center, not a transient incentive zone. This aligns more closely with how global financial hubs compete through policy continuity, regulatory clarity, and long-term capital formation.

What this means for global financial institutions

For international banks evaluating India exposure, the revised framework improves internal rate of return modeling across full business cycles. For domestic lenders, it restores competitiveness and supports deeper participation in offshore lending, treasury operations, and cross-border structuring.

More broadly, Budget 2026 marks a strategic inflection point: GIFT City is evolving from an incentive-led experiment into a durable financial ecosystem, one that is designed to anchor India’s role in global capital flows over the coming decades.

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