No TDS on Payments to IFSC Units

No TDS on Payments to IFSC Units – TDS Exemption for IFSC Units Effective from 1st July 2025

📌 Issued By:

Ministry of Finance (Department of Revenue), Government of India
Date of Notification: 20th June 2025
Effective Date: 1st July 2025

🔍 Legal Basis:

The notification is issued under:

• Section 197A(1F) of the Income-tax Act, 1961,
• Read with sub-sections (1A) and (2) of section 80LA.

This allows the Central Government to exempt certain payments from TDS under specific conditions.

🏢 Who is Covered?

This TDS exemption applies to any “payer” making specified payments to a “payee”, being a Unit in an International Financial Services Centre (IFSC), as defined under:

• Section 2(zc) of the Special Economic Zones Act, 2005, and
• Section 80LA(3) of the Income-tax Act, 1961.

🧾 Nature of Payments & TDS Provisions Exempted:

📝 Key Definitions (As per IFSC Authority Regulations):

• BATF Service Provider – Defined under IFSC Authority (Book-keeping, Accounting, Taxation, Financial Crime Compliance Services) Regulations, 2024.
• Broker Dealer, Finance Company, Fund Management Entity, Recognised Stock Exchange / Clearing Corporation / Depository – Defined under respective IFSC Authority Regulations made under the IFSC Authority Act, 2019.

📄 Conditions for TDS Exemption:

🔹 For the Payee (IFSC Unit):

• Must submit Form No. 1 (statement-cum-declaration) to the payer.
• Form must contain:
  • Details of previous years relevant to the 10 consecutive assessment years for which Section 80LA deduction is being claimed.
  • Declaration must be verified and submitted annually for each relevant previous year.

🔹 For the Payer (Deductor):

• Must not deduct tax on specified payments only after receiving a valid Form No. 1.
• Must report these exempted payments in TDS statements filed under section 200(3) read with Rule 31A of Income-tax Rules, 1962.

📌 Scope & Time Period of Exemption:

• Exemption is valid only for the 10 consecutive assessment years chosen by the IFSC Unit for 80LA benefit.
• Outside this period, TDS must be deducted as per normal rules.

🛡️ Compliance and Administration:

• The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall:
  • Define the formats, security standards, and data capture procedures.
  • Implement archival and retrieval systems for the declarations and related data.

📅 Form Reference:

• The Form No. 1 format is the same as in Notification No. 28/2024 (S.O. 1135(E)) dated 7th March 2024.

✅ Objective:

• This notification is part of the Government’s initiative to promote the growth and ease of doing business in IFSCs like GIFT City by reducing compliance burdens and eliminating unnecessary TDS on intra-financial sector transactions.

🔚 Conclusion:

This notification provides a significant tax compliance relaxation for eligible IFSC units by allowing TDS-free receipt of income such as professional fees, lease interest, advisory fees, etc., provided all conditions are met.
It is an essential relief for entities operating in India’s strategic international financial centres under the SEZ and IFSC frameworks.

Notification

Also Read:

1. Recommendations of the 55th Meeting of the GST Council
2. Changes in GST and Income Tax during the Financial Year 2024-25
3. TDS and TCS provisions applicable from April 1, 2025
4. Rationalizing TDS: A Deep Dive into Budget 2025’s Proposals

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Go To Finance Bill 2025

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