The Ministry of Finance has issued a notification exempting payments made to International Financial Services Centre (IFSC) units from Tax Deducted at Source (TDS) under the Income-tax Act, 1961. The exemption will come into effect from July 1, 2025.

The notification clarifies that no TDS shall be made on payments specified in a detailed table, when made by any “payer” to a “payee” — being a unit located in an IFSC set up under the Special Economic Zones Act, 2005 — provided the unit opts for deduction under Section 80LA of the Income Tax Act.

The wide-ranging exemption covers various categories, including:

BATF Service Providers: No TDS on consulting, advisory, or professional fees under Section 194J.

Broker-Dealers: Payments made by recognized stock exchanges and commission incentives covered under Sections 194J, 194H, or 194C.

Finance Companies: Interest from leases, freight or hire charges are exempt from TDS under Sections 194A and 194C.

Fund Management Entities: Portfolio and performance management fees, advisory charges, and other service fees exempt under Section 194J.

Recognised Clearing Corporations and Stock Exchanges: Various professional, technical fees, and even rent for data centers under Sections 194A, 194I, and 194J.

To avail the benefit the payee must furnish a statement-cum-declaration (Form No. 1) to the payer detailing the years for which it opts for the 80LA deduction. The payer must stop deducting tax only after receiving this declaration and must report such payments appropriately under section 200(3) and Rule 31A of the Income-tax Rules, 1962.

The relief is available only for the 10 consecutive assessment years as chosen by the payee under Section 80LA. If such declaration is not submitted or for any years outside the chosen period, standard TDS provisions will apply.

The Principal Director General of Income-tax (Systems) has been empowered to lay down data formats, security standards, and archiving protocols to ensure seamless and secure compliance.

Notification Details

Notification No. 67 /2025

Date: 20/06/2025

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