The Central Board of Direct Taxes (CBDT) on July 10, 2026, notified regarding the Exemption from TDS on Payments to IFSC Units.
The Central Government, in exercise of powers under section 400(1) read with section 147 of the Income-tax Act, 2025, has notified that no tax shall be deducted at source (TDS) on specified payments made to units located in International Financial Services Centres (IFSCs). The exemption applies to various IFSC entities such as broker dealers, custodians, credit rating agencies, investment advisers, fund management entities, finance companies, FinTech entities, and other regulated intermediaries, provided they are registered under relevant regulations of the International Financial Services Centres Authority (IFSCA). The notification clarifies definitions of these entities by linking them to respective IFSCA regulations and circulars.
The exemption is subject to conditions wherein the IFSC unit (payee) must furnish a statement-cum-declaration in the prescribed Form No. 1(N), specifying the twenty consecutive tax years for which it opts to claim deduction under section 147. The payer, upon receiving such declaration, is not required to deduct tax and must report such payments in prescribed TDS statements. The benefit is strictly limited to the declared twenty-year period, and TDS provisions will apply outside this period.
Additionally, the Principal Director General or Director General of Income-tax (Systems) will prescribe procedures for secure data handling and compliance. The notification is effective retrospectively from April 01, 2026, thereby providing clarity and tax relief framework for financial service transactions involving IFSC units.
[Notification No. S.O. 3743(E)]
