CBDT Notifies No TDS on Specified Payments to Eligible IFSC Units Under Income-tax Act, 2025

The Central Board of Direct Taxes (CBDT) has exempted specified payments made to eligible units operating in an International Financial Services Centre (IFSC) from tax deduction at source (TDS), provided the units have opted to claim deductions under the Income-tax Act, 2025.

The exemption is available only for the categories of payments notified by the government and is subject to prescribed conditions.

Through the notification issued under the Income-tax Act, 2025, the CBDT has also specified the categories of IFSC units eligible for the relief and the payments covered by it.

It also specifies the payments on which TDS will not be deducted.

The notified entities include Banking Units, Finance Companies, Finance Units, Fund Management Entities, Broker Dealers, Investment Advisers, Registered Distributors, Custodians, Credit Rating Agencies, Investment Bankers, Debenture Trustees, FinTech Entities, IFSC Insurance Intermediary Offices and International Trade Finance Service (ITFS) units.

Depending on the category of the IFSC unit, the exemption applies to payments such as interest income on external commercial borrowings and loans, professional fees, referral fees, brokerage income, insurance commission and dividend income. It also covers commission on factoring and forfaiting services, distribution fee and commission fee, trusteeship fee, credit rating fee, investment banker fee, investment advisory fee and technical fee.

To avail the benefit, the IFSC unit must furnish a statement-cum-declaration in Form No. 1(N) to the payer. The declaration must specify the twenty consecutive tax years for which the unit has opted to claim deduction. It must also be furnished and verified separately for each tax year covered by that option.

Once the payer receives the declaration, it is not required to deduct tax on the notified payments. The payer must, however, report the particulars of such payments in the prescribed TDS statement under the Income-tax Act and the Income-tax Rules, 2026.

The notification clarifies that the relaxation will remain available only during the twenty consecutive tax years declared by the IFSC unit for claiming deductions. For any other tax year, the payer will be required to deduct tax in accordance with the Act.

The notification also authorizes the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) to lay down procedures, formats and standards for secure capture and transmission of data and uploading of documents. They will also be responsible for implementing appropriate security, archival and retrieval policies.

The notification is deemed to have come into force on April 1, 2026. An explanatory memorandum clarifies that giving the notification retrospective effect does not adversely affect any person.

Notification No.: 80/2026/F. No. 275/19/2026-IT(B)