What’s New in India’s TDS Landscape for IFSC Units
Under Notification No. 80/2026 [F. No. 275/19/2026-IT(B)], the CBDT has exempted a suite of payments—interest, dividends, professional fees, commission, brokerage, and other financial service related income—received by eligible IFSC Units from TDS under the newly enacted Income-tax Act, 2025.(incometax.gov.in) This expands previous provisions that focused only on lease or other specific incomes to a much broader category. The exemption is effective from 1 April 2026.(incometax.gov.in)
Eligibility & Key Conditions
To qualify, the recipient must be a Unit in an IFSC, and the payments must come from certain financial services or related categories. Units must ensure that these incomes are covered under the specific schedule and definitions in the Act. Forms such as Form 1 (52/2023) and Form 1-28 are used to declare eligibility.(incometax.gov.in)
Practical Scenarios & Examples
| Scenario | Action Required | Resulting Benefit |
|---|---|---|
| IFSC Unit B receives annual dividend from another IFSC leasing company | File Form No. 1 (52/2023) with payer company to declare eligibility | Dividend paid with no TDS deducted |
| IFSC Unit C renders professional services to a domestic entity | File Form No. 1-28, electing 10 consecutive tax years under Section 147 | Service fee income exempt from TDS |
Planning Implications
- Early filing: Obtain and share the relevant Form 1 before payments to prevent the payer from deducting TDS.
- 10-year election window: Choose the 10 consecutive years wisely: once declared, this can’t be changed arbitrarily.
- Keep documentation ready: Proofs of IFSC unit status and permissions like SEBI registration or IFSC Authority license are critical.
Comparative Insight: India vs. South Asia Neighbors
Only India currently offers such sweeping TDS exemptions for financial payments received by IFSC Units. For example,
- Bangladesh focuses on VAT exemptions, concessional benefits for specific zones, and credit enhancement rate changes but not similar TDS withholdings.(nbr.gov.bd)
- Pakistan is introducing withholding tax on social media revenue rather than offering broad TDS exemptions.(fbr.gov.pk)
Actionable Steps for IFSC Units & Counterparties
- Identify income buckets (interest, commission, dividends) that may be eligible.
- File the appropriate Form 1 before payments are made.
- Coordinate with counterparties to ensure TDS non-deduction.
- Monitor annual compliance—maintain IFSC unit status, active permissions, and election period validity.
- Document all transactions and keep evidentiary backup in case of audit.
This policy enhances the appeal of IFSC units in India and offers significant TDS savings when properly navigated.