Tax Planning

Tax Planning under India’s New Income-tax Act, 2025: What IFSC Units Should Know

Recent CBDT notifications introduce TDS exemptions for IFSC units on aircraft/ship leases and financial service payments—crucial for planning cashflow and contract terms.

By NomadicTax Research Team • 5-8 min read • August 17, 2026

## Introduction India’s overhaul of direct tax law with the **Income-tax Act, 2025**, effective **1 April 2026**, has introduced several changes highly relevant for International Financial Services Centre (IFSC) units. Recent CBDT notifications grant **exemptions from deduction of tax at source (TDS)** for certain payments received by eligible IFSC units. This article helps you structure leases, contracts and financial services income to maximize these benefits. ## Key Notifications to Watch - **Notification No. 75/2026:** Non-deduction of TDS on **ship lease rent** paid to IFSC units under Section 147 of the Act. Comes with form-driven compliance. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai)) - **Notification No. 74/2026:** Similar non-deduction for **aircraft lease rent** paid to IFSC units. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news?page=%2C0&year=2026&utm_source=openai)) - **Notification No. 80/2026:** Specified payments like **interest, dividends, professional fees, commissions, brokerage, and other financial service-related income** received by eligible IFSC units are exempt from TDS. Huge for IFSC unit service providers. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news?utm_source=openai)) ## What Conditions Apply - The **lessor** (IFSC unit) should furnish a “statement-cum-declaration” in the prescribed form (e.g. Form No. 1(N) for ship leasing) opting for a block of twenty consecutive tax years during which they claim the benefit. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai)) - After the declaration is submitted and verified, **lessees** must report the payments in their TDS returns even if no TDS is deducted. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai)) ## Tax Year vs Assessment Year: New Structure The new Act replaces the **Assessment Year (AY)** concept with a **Tax Year**, aligning it with the financial year beginning **1 April** and ending **31 March**. All income earned in that period is assessed under the new law. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act-faq?utm_source=openai)) ## Actionable Planning Tips - **Include the IFSC option in contracts**: If you're entering leasing or service contracts with an IFSC unit, ensure the unit can make the statement-cum-declaration to support TDS non-deduction. - **Cash flow management**: Without TDS, cash flow improves significantly—valueable especially for capital intensive leases or long-term service contracts. - **Maintain compliance records**: Lessees must still report payments; lessors must keep records of the declaration covering 20 tax years. - **Review existing contracts**: For contracts entered before 1 April 2026, check whether you can renegotiate or update to leverage these benefits in future tax years. ## Examples - **Scenario A: Ship leasing unit** — IFSC unit L leases a ship to Lessee M under a long-term agreement. L files Form No. 1(N) declaring 20 tax years. M, upon receiving this, makes lease payments, deducts **no TDS**, and reports the payments in its TDS return. L enjoys full receipt without deduction drag on cash flows. - **Scenario B: Financial services-related income** — A consulting firm located in an IFSC receives professional fees and brokerage. Under Notification 80/2026, these receipts are exempt from TDS if eligibility criteria met. ## Caveats & Watchpoints - Only **eligible IFSC Units** can avail these exemptions. Definitions as per the SEZ Act and corresponding sections must be checked carefully. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai)) - The exemption depends on maintaining **good standing**; failure to submit declaration or other form requirements nullifies benefit for those years. - Transitional provisions: AY 2026-27 corresponds to Tax Year 2026-27; for income earned before 1 April 2026, old rules still apply. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act-faq?utm_source=openai)) ## Summary IFSC units have compelling new TDS exemptions under the 2025 Act. To make the most: - Arrange declarations early - Structure payments carefully - Stay compliant with reporting obligations - Review contracts in force With these changes thoughtfully applied, IFSC units and counterparties can significantly enhance income flows and reduce tax friction under India’s revamped tax regime.