CBDT has notified that no TDS is required to be deducted on specified payments made to IFSC Units effective from April 1, 2024, vide Notification 28/2024. The notification covers a wide range of IFSC Units including,-
a) Banking Units: No TDS on interest income from external commercial borrowings, professional fees, referral fees, brokerage income, and commission income from factoring and forfaiting services.
b) Insurance Intermediaries: No TDS on insurance commission income.
c) Finance Companies/Units: No TDS on interest from external borrowings, dividend income, and commission from factoring and forfaiting.
d) Fund Managers, Investment Advisors, Custodians, Credit Rating Agencies, Investment Bankers, Debenture Trustees: No TDS on professional/advisory fees and commission income.
e) Brokers: No TDS on dividend income.
f) Trade Finance Service Providers, FinTech Entities: No TDS on commission income.
To claim this exemption, the IFSC Units need to furnish a statement-cum-declaration in Form 1 to the payers, specifying the 10 consecutive assessment years for which they opt for deduction under section 80LA of the Income Tax Act. The payers then don’t need to deduct TDS on qualifying payments made to those IFSC Units during that period. If the IFSC Unit does not furnish Form 1, or the payment relates to years outside the 10-year period mentioned in Form 1, then normal TDS provisions will apply.
The notification comes into effect from April 1, 2024 and lays down procedural requirements to claim and administer these exemptions securely.
The CBDT has specified conditions and definitions related to the various types of IFSC Units covered. Strict definitions are provided for different categories of IFSC Units eligible for this based on the regulations/circulars governing their operations.
It has also mandated procedures for secure data transmission to be laid down by the systems wing, i.e. the procedures for uploading Form 1 etc. will be established by the Systems wing to enable proper tracking and reporting.
Thus CBDT has notified exemption from TDS obligations for certain specified payments made to IFSC Units during the 10-year tax holiday period they are claiming under section 80LA. The payments covered include interest, fees, commissions and other operational income streams earned by IFSC Units from financial services activities. To avail this, the IFSC Unit has to furnish Form 1 to each payer declaring the 10-year period. The payer then does not need to deduct TDS on those payments but has to report them in the quarterly TDS statement. Appropriate definitions, conditions and procedures have been outlined to operationalize this in a systematic manner. This should ease regulatory compliance and provide tax certainty for IFSC Units during their crucial initial years of operations.
CBDT Income Tax Notification 28/2024 dated 07/03/2024: TDS Exemption for Certain Payments to IFSC Units from April 1, 2024