Central Board of Taxes (CBDT) has issued a Notification No. 28/2024 dated 07th March 2024 exempting Tax Deducted at Source (TDS) compliances for specified payments made to certain International Financial Services Centre (IFSC) units under section 197A(1F) read with section 80LA of the Income-tax Act, 1961 (IT Act).
Exemption from TDS on specified payments
As per the aforesaid notification, no tax will be required to be deducted at source while making specified payments to the specified units in IFSC, which are eligible and have claimed the benefit under section 80LA of the Act. The list of specified units along with specified payments which would not be subject to TDS are as under:
| Sr. No. | IFSC Units (Payee) | Nature of receipt |
|
1
|
Banking Unit
|
Interest income on External Commercial Borrowings /Loans |
| Professional fees | ||
| Referral fees | ||
| Brokerage income | ||
| Commission income on factoring and forfaiting services | ||
| 2 | IFSC Insurance Intermediary Office |
Insurance commission |
|
3
|
Finance Company
|
Interest income on External Commercial Borrowings /Loans |
| Dividend income | ||
| Commission income on factoring and forfaiting services | ||
|
4
|
Finance Unit
|
Interest income on External Commercial Borrowings /Loans |
| Dividend income | ||
| Commission income on factoring and forfaiting services | ||
| 5 | Fund Management Entity | Professional fee |
| 6 | Broker-Dealer | Dividend |
| 7 | Investment Advisor | Investment advisory fee |
| 8 | Registered Distributor | Distribution fee and Commission fee |
|
9
|
Custodian
|
Professional fee |
| Commission fee | ||
| 10 | Credit rating agency | Credit rating fee |
| 11 | Investment banker | Investment banker fee |
| 12 | Debenture trustee | Trusteeship fee |
| 13 | International Trade Finance Service or “ITFS” | Commission income |
|
14
|
FinTech Entity
|
Technical fee/Professional fee |
| Commission income |
Conditions for availing the exemption
- IFSC Unit will be required to submit a statement-cum-declaration in Form No. 1 to the ‘payer’ providing details of ten consecutive fiscal years (FYs) for which deduction is being claimed under section 80LA(1A) and (2) of the IT Act.
- Such statement-cum-declaration shall be furnished and verified in the prescribed manner, for each FY for which the IFSC unit opts for claiming deduction under section 80LA(1A) and (2) of the IT Act.
- The ‘payer’ shall not deduct tax at source on payment made to the IFSC unit, after the date of receipt of the copy of the above statement-cum-declaration i.e. Form 1 from Payee.
- Further, the ‘payer’ shall furnish the particulars of all the payments on which tax was not deducted, in their TDS return.
Validity of the above Exemption
- The above relaxation would be available to the IFSC units only during the ten consecutive FYs for which tax holiday would be claimed and the same has been declared in Form No. 1 by the IFSC Unit.
Document to be maintained by IFSC Unit and Payer:
IFSC Unit:
- Furnish a statement-cum-declaration (Form No. 1) to the payer, detailing eligibility and opting for the exemption for ten consecutive assessment years.
- Maintain registration under relevant IFSC Authority regulations.
Payer:
- Not deduct tax upon receiving the Form No. 1 from the IFSC Unit.
- Include details of TDS-exempt payments in the tax deduction statement.
