In a significant move aimed at strengthening India’s International Financial Services Centre (IFSC) ecosystem, the Central Board of Direct Taxes (CBDT) has notified that no tax shall be deducted at source (TDS) on specified payments made to eligible units operating in an IFSC under the Income-tax Act, 2025.
The notification seeks to provide TDS relief for certain categories of payments received by eligible IFSC units. By eliminating the obligation to deduct tax at source on these specified receipts, the Government aims to reduce compliance burdens and improve the ease of doing business within India’s IFSC framework.
The exemption applies only to the payments specifically listed in the notification and is available to eligible IFSC units mentioned therein.
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Under the notification, Banking Units operating in an International Financial Services Centre have been granted TDS exemption on the following categories of receipts:
- Interest income on External Commercial Borrowings (ECBs) and loans covered under Section 393(2) of the Income-tax Act, 2025.
- Professional fees covered under Section 393(1).
- Referral fees covered under Section 393(1).
- Brokerage income covered under Section 393(1).
Accordingly, persons making these specified payments to eligible IFSC Banking Units will not be required to deduct tax at source under the corresponding provisions of the Income-tax Act, 2025.
Statutory Basis
The notification has been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025, empowering the Central Government to notify categories of payments on which tax deduction at source shall not be required.
The notification specifically states that no deduction of tax shall be made in respect of the payments listed in the accompanying table when such payments are made to the notified IFSC units.
Boost for India’s IFSC Ecosystem
The move is expected to further strengthen India’s ambition of developing globally competitive financial services hubs, particularly the Gujarat International Finance Tec-City (GIFT City), which houses numerous banking, financial, insurance, capital market and fintech entities operating under the IFSC framework.
Reducing TDS obligations on specified transactions improves liquidity for eligible institutions, minimizes administrative compliance, and aligns India’s IFSC tax regime with internationally competitive financial centres.
Impact on Businesses and Payers
The notification provides greater certainty to businesses, banks and financial institutions making payments to eligible IFSC Banking Units. Since TDS is not required on the notified categories of payments, payers will not have to deduct and deposit tax for these transactions, subject to satisfaction of the conditions prescribed under the notification and the Income-tax Act, 2025.
Tax professionals believe the measure will simplify cross-border financial transactions undertaken through IFSC entities while reinforcing the Government’s broader policy objective of making India’s IFSC an attractive destination for global financial services.
Key Payments Covered Under the Notification
| IFSC Unit | Nature of Receipt | Relevant Income-tax Act, 2025 Provision |
| Banking Unit | Interest income on External Commercial Borrowings (ECBs)/Loans | Section 393(2) |
| Banking Unit | Professional fees | Section 393(1) |
| Banking Unit | Referral fees | Section 393(1) |
| Banking Unit | Brokerage income | Section 393(1) |
The notification came into effect upon its publication in the Official Gazette and forms part of the Government’s continuing efforts to provide a competitive and facilitative tax framework for units operating in India’s International Financial Services Centres.
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