CBDT Exempts Specified Payments to Eligible IFSC Units from TDS
The Central Board of Direct Taxes has notified that specified payments to eligible units in an International Financial Services Centre (IFSC) will be made without tax deduction at source, once the unit has given the payer a copy of its statement-cum-declaration in Form No. 1(N). Notification No. 80/2026 (S.O. 3743(E)) is dated 10 July 2026 and is issued under section 400(1) read with section 147 of the Income-tax Act, 2025. It is deemed to have come into force on 1 April 2026, so it covers the whole of tax year 2026-27.
Section 147 is the provision under which an IFSC unit claims its deduction under the new Act, and the TDS relief is tied to the tax years for which the unit opts for that deduction. IFSC units had a similar relief under the Income-tax Act, 1961, through Notification S.O. 1135(E) of 7 March 2024 issued under section 197A(1F). The 2026 notification carries that arrangement into the 2025 Act.
Which units and receipts are covered
The table in the notification lists 14 kinds of IFSC units. For each one it names the receipts that are covered and the entry of section 393 under which tax would otherwise have been deducted:
| IFSC unit (payee) | Receipts covered |
|---|---|
| Banking Unit | Interest on external commercial borrowings or loans, professional fees, referral fees, brokerage, and commission on factoring and forfaiting |
| IFSC Insurance Intermediary Office | Insurance commission |
| Finance Company and Finance Unit | Interest on external commercial borrowings or loans, dividend, and commission on factoring and forfaiting |
| Fund Management Entity | Professional fee |
| Broker Dealer | Dividend |
| Investment Adviser | Investment advisory fee |
| Registered Distributor | Distribution or commission fee |
| Custodian | Professional fee and commission fee |
| Credit Rating Agency | Credit rating fee |
| Investment Banker | Investment banker fee |
| Debenture Trustee | Trusteeship fee |
| International Trade Finance Services (ITFS) entity | Commission income |
| FinTech Entity | Technical or professional fee and commission |
The relief is specific to the receipt. A Fund Management Entity, for example, is covered only for professional fees, so a dividend it receives stays under the ordinary TDS rules. A Broker Dealer is covered only for dividends. A payer therefore has to match both the kind of unit and the kind of receipt against the payee's row before it stops deducting tax.
The Form No. 1(N) condition
The exemption does not start on its own. The payee must furnish a statement-cum-declaration in Form No. 1(N) giving the twenty consecutive tax years for which it opts to claim the deduction under section 147. The declaration has to be furnished and verified for each of those tax years, not just once. The form asks for the unit's name, PAN, its location in the IFSC, the authority that granted its registration or permission and the date of that approval, and the period chosen. It must be verified by a person who is competent to sign the unit's return of income.
The payer stops deducting tax only on amounts paid or credited after the date on which it receives a copy of the declaration. Amounts paid or credited before that date remain subject to the usual deduction, even though the notification is deemed to apply from 1 April 2026. The relief also lasts only for the twenty tax years chosen by the unit. For any other year the payer must deduct tax in the normal way.
Reporting by the payer does not stop
Not deducting tax does not remove the reporting duty. The notification requires the payer to give particulars of all payments made without deduction in its TDS statement, as provided in section 397(3)(b) of the Act read with rule 219. In practice this means the vendor master or ERP tax code for the IFSC unit should carry the Form No. 1(N) reference, the tax year it covers and the date the copy was received, so that each quarterly statement can show why no tax was deducted.
What a payer should check before stopping TDS
- The payee is one of the 14 kinds of IFSC unit in the table, with the registration or permission stated in its Form No. 1(N).
- The receipt appears in that unit's row, for example professional fees for a Custodian or insurance commission for an IFSC Insurance Intermediary Office.
- A copy of Form No. 1(N) for the current tax year has been received, and the date of receipt is on record.
- The current tax year falls within the twenty-year period chosen in the form.
If any of these is missing, tax should be deducted as usual. Tax already deducted before the declaration reached the payer is not undone by the notification; the IFSC unit claims credit for it in its return of income.
The complete notification, including the table with the section 393 entry for each receipt and the text of Form No. 1(N), is available as Notification No. 80/2026 on the Income Tax Department website.
Updated on 27 September 2026: added the official notification, corrected its date to 10 July 2026, and added the list of covered units and receipts and the Form No. 1(N) conditions.
