CBDT Exempts Specified Payments to Eligible IFSC Units from TDS Deduction

The Central Board of Direct Taxes (CBDT) has notified that tax will not be deducted at source on specified payments made to eligible units operating in an International Financial Services Centre (IFSC). The exemption has been issued through Notification No. 80/2026 dated 10 July 2026 under Section 400(1), read with Section 147 of the Income-tax Act, 2025.

The relief applies to prescribed receipts earned by notified IFSC entities, including banking units, insurance intermediary offices, finance companies, finance units, fund management entities, broker-dealers, investment advisers, registered distributors, custodians, credit rating agencies, investment bankers, debenture trustees, International Trade Finance Service providers and FinTech entities.

Covered payments include interest on external commercial borrowings or loans, dividends, professional and technical fees, brokerage income, referral fees, insurance commission, investment advisory fees, distribution commission, trusteeship fees, credit-rating fees and commission from factoring or forfaiting services.

To claim the exemption, the eligible IFSC unit must furnish Form No. 1(N) to the payer for every applicable tax year. The form must specify the period of 20 consecutive tax years for which the unit has opted to claim the deduction available under Section 147.

After receiving the declaration, the payer will not deduct tax from the specified payments. However, details of payments made without TDS must be reported in the prescribed tax-deduction statement under Section 397(3)(b), read with Rule 219 of the Income-tax Rules, 2026.

The exemption will remain available only during the 20 consecutive tax years declared by the eligible IFSC unit. The notification has been given retrospective effect from 1 April 2026. CA Sansaar

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