For Indian founders and companies planning international expansion, two main structures are now available:
- Direct investment abroad through the Overseas Direct Investment (ODI) route, or
- Setting up a holding entity through GIFT City IFSC (International Financial Services Centre) and investing globally.
With the Indian government simplifying ODI rules in 2022 and offering major tax perks for GIFT City, the choice has become a strategic one.
This blog compares ODI vs GIFT City SPV routes and analyzes which one is cheaper and more efficient for overseas investment.
Legal Reference
- Foreign Exchange Management (Overseas Investment) Rules, 2022
- Special Economic Zone Act, IFSCA Act, 2019 (for GIFT City IFSC)
- Income Tax Act Sections 10AA and 115A related to GIFT City taxation
What is the ODI Route?
Under ODI, Indian companies and residents can directly:
- Acquire or set up a foreign company (WOS or JV)
- Invest up to 400% of their net worth without RBI approval (subject to sectoral caps)
- Report investments through Form FC-ODI filings on RBI’s portal
Taxation: Global income taxable in India on a worldwide basis (unless structured through DTAA benefits).
What is a GIFT City SPV?
GIFT City is India’s international financial center located in Gujarat.
Key features of GIFT City SPV:
- Entity incorporated under IFSCA regulatory framework
- Treated as non-resident for FEMA purposes
- Can freely invest globally without ODI caps
- Enjoys special tax benefits under Indian income tax laws
Taxation:
- 100% tax exemption for 10 consecutive years out of 15 years (for specified units)
- Dividend from foreign subsidiaries taxed at concessional rates
ODI vs. GIFT City SPV: Quick Comparison
| Feature | ODI Route | GIFT City SPV |
|---|---|---|
| Regulation | FEMA (ODI Rules 2022) | IFSCA + FEMA relaxation |
| Investment Limit | 400% of net worth | No limit (subject to sectoral guidelines) |
| Setup Process | RBI Form FC-ODI filings | Incorporate SPV under GIFT City laws |
| Income Tax | Global income taxed fully | 100% tax exemption for specified units |
| Dividend Tax | Regular tax rates | Lower tax rates (subject to conditions) |
| Compliance | RBI filings + FEMA | IFSCA + minimal FEMA reporting |
Cost Analysis: Which Route Is Cheaper?
- Initial Setup Costs
- ODI: Minimal
- GIFT City: Higher (company incorporation, office lease, regulatory licensing)
- Ongoing Costs
- ODI: Low
- GIFT City: Moderate (minimum operational expenses required)
- Tax Costs
- ODI: Higher (global income taxed)
- GIFT City: Lower (0% income tax for 10 years)
- Investment Flexibility
- ODI: Restricted
- GIFT City: Freely invest globally
Example: Investment Structure
Company XYZ (India):
- Wants to invest ₹30 crore in a US SaaS company
Option 1 – ODI Route:
- Direct investment
- Income from US entity taxed at Indian corporate rates (25%–30%)
Option 2 – GIFT City SPV:
- Create SPV at GIFT IFSC
- Invest from SPV
- SPV pays 0% tax for 10 years, only remits dividends or profits back to India as needed
GIFT City route is significantly cheaper for medium-to-large scale overseas investments.
Factors to Consider Before Choosing
- Size of investment: GIFT City better for larger transactions
- Timeline: ODI is faster for quick execution
- Future profits: GIFT City offers better tax arbitrage
- Compliance appetite: GIFT City has slightly more operational formalities
- Investor profile: Start-ups and SMEs may find ODI simpler unless scaling globally
Conclusion
For significant outbound investments or when setting up global holding structures, GIFT City SPV provides far better tax efficiency and operational flexibility compared to the direct ODI route.
However, for smaller, faster transactions, ODI continues to be an easy and affordable option.
Call to Action and Disclaimer
Need help deciding between ODI and GIFT City structures for your overseas investment plans?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for educational purposes only and should not be considered formal investment advice.
Frequently Asked Questions
1. Is approval needed for ODI under the new rules?
Not unless investing in sensitive sectors or exceeding financial limits.
2. Can a GIFT City entity hold assets outside India freely?
Yes, subject to IFSCA norms.
3. What are the minimum substance requirements in GIFT City?
Office lease, local director, and regulatory license depending on activity.
4. Is double taxation avoided through GIFT City?
Generally yes, but DTAA planning still advisable.
5. Can start-ups use GIFT City for early-stage outbound expansion?
Possible, but cost-benefit analysis needed if investment size is small.