Tax Planning
How Global South Asian IFSC Units Can Leverage TDS Exemptions for Leasing Income
New Indian rules exempt IFSC Units from TDS on several income types — here’s how shipping or financial services units can use this for impact while staying compliant.
By NomadicTax Research Team • 5-8 min read • August 20, 2026
## Understanding the IFSC TDS Exemptions in India
In mid-2026, India’s tax authorities introduced **Notification No. 80/2026** which exempts **eligible IFSC Units** from TDS on payments such as interest, dividends, professional fees, commission, brokerage, and other financial service-related income. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news?year=2026&utm_source=openai)) Also, S.O. 3610(E) rules exempt TDS on ship lease rents to IFSC Units, provided they use a declaration (Form 1(N)) and opt for deduction under section 147 for 20 consecutive years. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai))
## Tax Planning Opportunities
- **Cash flow advantages**: IFSC Units can receive payments in full without waiting for TDS refund claims, improving working capital.
- **Lease ship financing deals**: Entities leasing ships to IFSC Units can structure transactions to fall under the exemption.
- **Selecting tax years**: IFSC Units need to opt for 20 consecutive years under section 147 to maintain the ship lease TDS benefit — plan ahead to avoid missing years.
## Practical Example
Suppose “GlobalShip Leasing Pvt Ltd” is an IFSC Unit leasing ships. In FY 2026-27, it plans to receive ₹50 million in lease rent. If it files **Form 1(N)** declaring 10 April 2026 as the start of its 20‐year period, **lessees need not deduct TDS** from payments to GlobalShip after date of delivery of the form. But if a year is skipped, the exemption lapses for that year. Lessees also require the acknowledgment before applying exemption.
## Compliance Considerations
- Ensure correct form submission on the e-Filing portal; Form 1(N) must be fully completed and verified. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11591?utm_source=openai))
- Ensure eligibility under what qualifies as an IFSC Unit and what payments would be covered (e.g. if leasing, financial services). Review definitions under the relevant sections of the Income-tax Act 2025 and the Special Economic Zones Act.
- Maintain documentation justifying the selection of 20 consecutive years. Any discontinuities may lead to disqualification or retrospective TDS demands.
## Key Takeaways
- These exemptions are **not retroactive**: only payments after the Form’s receipt are TDS-free under the specified rules.
- Exemptions improve cash flows and simplify TDS compliance for IFSC Units with high incomes from financial services or leasing.
- Other South Asian countries currently do not explicitly offer comparable IFSC-based TDS exemptions; companies operating regionally should assess whether structuring or cross-border leases could benefit from Indian rules.