CBDT exempts TDS for IFSC Units

On 7-3-2024, the Central Board of Direct Taxes issued a notification declaring that no deduction of tax will be made under the provisions of Income Tax Act, 1961 in respect of the payments of certain nature of receipts of International Financial Services Centre (‘IFSC’) made by any payer to a person being a Unit of IFSC. The provisions will come into force on 1-4-2024.

Key Points:

1. Exempted Nature of Receipts from Payment of taxes:

   • Banking Unit-

     ✓ Interest income on External Commercial Borrowings /Loans

     ✓ Professional fees

     ✓ Referral fees

     ✓ Brokerage income

     ✓ Commission income on factoring and forfaiting services

   • IFSC Insurance Intermediary office- Insurance commission

   • Finance Company-

     ✓ Interest income on External Commercial Borrowings /Loans

     ✓ Dividend income

     ✓ Commission income on factoring and forfaiting services

   • Finance Unit-

     ✓ Interest income on External Commercial Borrowings /Loans

     ✓ Dividend income

     ✓ Commission income on factoring and forfaiting services

   • Fund Management entity- Professional fee

   • Broker Dealer- Dividend

   • Investment advisor- Investment advisory fee

   • Registered Distributor- Distribution fee and Commission fee

   • Custodian-

     ✓ Professional fee

     ✓ Commission fee

   • Credit rating agency- Credit rating fee

   • Investment banker- Investment banker fee

   • Debenture trustee- Trusteeship fee

   • International Trade Finance Service or “ITFS”- Commission income

   • FinTech Entity-

     ✓ Technical fee/Professional fee

     ✓ Commission income

2. The following will be the services qualifying under this notification:

   • IFSC Authority (Banking) Regulations, 2020;

   • IFSC Authority (Insurance Intermediary) Regulations, 2021;

   • IFSC Authority (Finance Company) Regulations, 2021;

   • IFSC Authority (Fund Management) Regulations, 2022;

   • IFSC Authority (Capital Market Intermediaries) Regulations, 2021;

   • IFSC Circular dated the 9-7-2021;

   • IFSC Circular dated 27-4-2022.

3. Conditions to be followed for the provisions to be exercised:

   • Payee will have to furnish a statement-cum-declaration in Form No. 1 to the Payer giving details of previous years relevant to the 10 consecutive assessment years for which the Payee opts for claiming deduction under Section 80LA sub-sections (1A) and (2) of the Income-tax Act.

   • Payer will not deduct tax on payment made or credited to payee after the receipt of copy of statement-cum-declaration.

   • The relaxation will be available to payee only during the relevant previous years up to 10 consecutive assessment years.