Tax Planning
How India’s IFSC Units Can Optimize TDS Exemptions Under Sec 147
Unlocking tax benefits for IFSC-Units: eligibility, documentation & planning under India's latest CBDT TDS exemption rules.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## Overview
In July 2026, the Central Board of Direct Taxes (CBDT) issued Notification No. 80/2026 under F. No. 275/19/2026-IT(B), declaring that specified payments like **interest, dividends, professional fees, brokerage**, and financial-service-related income received by eligible **IFSC Units** shall be **exempt from TDS (Tax Deducted at Source)** under the new Income-tax Act, 2025. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news/11888?utm_source=openai))
Here’s how IFSC Units and their payers can take advantage of this change — and where care is needed.
## Who qualifies as an IFSC Unit – and what payments are covered?
| **Feature** | **Details** |
|--------------|--------------|
| Eligible Unit | Unit registered in an International Financial Services Centre (e.g. GIFT IFSC), and opted to claim deduction under Section 147 for **10 consecutive tax years out of 15**. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11591?utm_source=openai)) |
| Covered Payments | Interest, dividends, professional & brokerage fees, commission and other financial-service related income. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news/11888?utm_source=openai)) |
| Not Deducted by Payer (TDS Nullified) | The payer must receive from the IFSC Unit a valid **Form No. 1-New-28** (statement-cum-declaration) to avoid deducting TDS. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11591?utm_source=openai)) |
## Practical steps for IFSC Units
1. **Verify registration and eligibility**: Ensure registrations are valid, and the plan to claim Section 147 benefits for 10 out of the next 15 years is documented.
2. **Form 1-New-28 submission**: Submit this statement-cum-declaration to each payer of income. Without this, payer must still deduct TDS. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11591?utm_source=openai))
3. **Maintain proper records**: Keep proof of payments, forms submitted, and documentation supporting the 10-year election.
4. **Coordinate with payers**: Payers should be aware of the requirement; sometimes they may request clarifications or attach conditions.
## What payers should do differently
- On receiving **Form 1**, record it properly and set internal processes so they do not deduct TDS on covered payments.
- Ensure that the nature of services fits within the specified kinds listed.
- Retain Form 1 record in case of audit or review.
## Examples
**Example 1:**
An IFSC unit providing financial advisory services receives ₹10 lakh as professional fees. It has submitted a valid Form 1 to the payer. Before this notification, the payer would deduct TDS (say 10%). With the exemption, no TDS will be deducted, freeing up cash-flow.
**Example 2:**
Another IFSC unit hasn’t opted for Section 147 or didn’t provide Form 1. Payer must continue deducting TDS despite notification. The unit loses benefit.
## Interplay with other rules & risk points
- Only those IFSC Units that opted for the 10-out-of-15-year election under section 147 qualify.
- If eligible income is misclassified, payer may be forced to deduct TDS anyway, with risk of penalties.
- IFSC Units should verify that they meet the conditions **before** claiming exemption.
## Action Points
- Check if your entity qualifies, opt in under section 147, and ensure every payer gets **Form 1**.
- If you’re a payer, integrate validation steps to verify that Forms 1 are genuine before zero-rating TDS.
- Update accounting systems so that entries and withholding calculations incorporate these new rules from the effective date.
**Takeaway:** Eligible IFSC Units in India can significantly improve cash-flow and reduce compliance burden under the latest CBDT TDS exemption rule — but only by ensuring eligibility and keeping documentation tight. With proper coordination, both units and payers gain.