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)
- Notification No. 74/2026: Similar non-deduction for aircraft lease rent paid to IFSC units. (incometax.gov.in)
- 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)
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)
- 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)
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)
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)
- 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)
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.