Tax Planning
Tax Planning in India Spotlight: Leveraging IFSC Units to Minimize TDS Obligations
How units located in India’s International Financial Services Centres can reduce or eliminate TDS on financial and lease-rent payments—and what conditions must be met to do so.
By NomadicTax Research Team • 5-8 min read • August 19, 2026
## Understanding IFSC and Section 147 Benefits in India
India’s **International Financial Services Centres (IFSCs)** such as GIFT City offer special tax treatments to entities operating within them. Section 147 of the Income-tax Act, 2025 provides **deduction or exemption from certain taxes**, including **non-deduction of TDS** on payments made to IFSC Units under specific circumstances.
### What Are the Key Provisions as of Mid-2026
- **Notification 80/2026**: Interest, dividends, professional fees, commission, brokerage, and similar financial-service payments received by eligible IFSC Units are **exempt from TDS** under the Income-tax Act, 2025. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news/11888?utm_source=openai))
- **Notification 75/2026**: Ship lease or supplemental lease rent paid to lessors in an IFSC are also **not subject to TDS**, provided lessor furnishes Form No. 1(N) declaration. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai))
### Conditions to Avail These Benefits
1. The recipient must be a **valid IFSC Unit** as defined under Section 147 and SEZ / IFSC regulations.
2. For ship lease rent TDS exemption: lessor must provide **statement-cum-declaration in Form 1(N)** with detail of the 20 consecutive tax years for which benefits are claimed. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai))
3. **Notification 80/2026** does not specify a form like lease case, but eligibility under IFSC Unit under Section 147 is required.
### Example Scenarios
- A GIFT IFSC-based company provides brokerage services to clients outside India. Under Notification 80/2026, payments to it by Indian payers are **not subject to TDS** on commission or brokerage, reducing cash flow burden.
- A ship leasing company inside IFSC leases a vessel to a lessee elsewhere in India. Under Notification 75/2026, the lessee won’t deduct TDS on lease rentals if the company furnishes Form 1(N).
### Strategic Steps for Taxpayers
- **Verify IFSC Unit status**: Ensure registration and eligibility under Section 147.
- **File necessary declarations/forms**: Forms like Form 1(N) are crucial for ship/aircraft lease rent exemptions.
- **Maintain continuity**: IFSC Units often must opt for tax holiday for **10 consecutive years out of 15** years. Changes in business or restructuring may jeopardize benefits.
- **Review payers’ compliance**: Payers must accept declarations to avoid withholding. Legal documentation should reflect the exemption.
## Cross-Border Remittance & DTAA Considerations
Although these changes are domestic, cross-border clients, investors or lessors in IFSC may also rely on **Double Taxation Avoidance Agreements (DTAAs)** to reduce withholding or secure credits. Ensure the foreign beneficiary provides required tax residency documents under DTAA to avoid higher rates.
## Actionable Insights
- IFSC Units should consult with tax advisors to ensure proper documentation.
- Lessees/payers should modify accounting systems to check for declarations before deducting TDS.
- Foreign entities receiving payments from IFSC Units—check if funds flow under the domestic exemption or subject to treaty rates.
Leveraging IFSC status under Section 147 creates meaningful TDS relief, but the benefits are conditional on filing the appropriate forms and maintaining compliance. When structured properly, this offers significant tax planning advantages without dispute risk.