In a major relief aimed at bolstering India's International Financial Services Centres (IFSCs), the Central Government has issued a notification exempting tax deduction at source (TDS) on certain payments made to units operating in IFSCs. The notification, issued under Section 197A(1F) read with Sections 80LA(1A) and 80LA(2) of the Income Tax Act, 1961, will come into effect from July 1, 2025.
The new rules specify that no TDS will be required on payments made to eligible IFSC units for services like professional consultancy, interest income, technical fees, lease rentals, and incentives, among others. These units include BATF service providers, broker-dealers, finance companies, fund management entities, clearing corporations, depositories, and stock exchanges recognized under the IFSCA framework.
Key Highlights
- Exempted Payments: Include professional fees, interest on lease, management fees, data center rent, and commissions.
- Applicable Provisions: TDS provisions under sections such as 194A, 194C, 194H, 194I, and 194J have been waived for specified payments.
- Eligibility: Applies only to payees (IFSC units) that have opted for deductions under Section 80LA for a block of 10 consecutive assessment years.
- Compliance: The payee must submit a "statement-cum-declaration" (Form No. 1) to the payer annually to claim this benefit.
- Scope: The exemption is valid only for business income from operations approved in a Special Economic Zone (SEZ).
This move is expected to attract more global players to establish a presence in GIFT City and other notified IFSCs by enhancing post-tax returns and easing compliance burdens. Experts say the notification aligns with India's vision of positioning IFSCs as competitive global financial hubs.
The Principal Director General or Director General of Income Tax (Systems) will soon lay down the formats, security protocols, and archival mechanisms for smooth implementation.
Official copy of the notification has also been attached
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