Income Tax Dept Specifies Conditions for TDS Exemption on Purchases from IFSC Units u/s 194Q [Read Order]

The Income Tax Department issued Notification No. 3/2025, dated January 2, 2025, outlining specific conditions under which buyers are exempted from deducting tax at source ( TDS ) on purchases made from International Financial Services Centre ( IFSC ) Units. This exemption is applicable under sub-section (1F) of Section 197A of the Income Tax Act, 1961.

The notification specifies that no TDS shall be required under Section 194Q for transactions involving the purchase of goods from IFSC Units, provided the following conditions are met:

Become a PF & ESIC expert with our comprehensive course – Enroll Now

For Sellers:

• Declaration Submission: Sellers must provide a statement-cum-declaration in the prescribed Form No. 1, as introduced in an earlier notification (dated March 7, 2024). This declaration must detail prior assessment years relevant to a maximum of ten consecutive years for which deductions under Sections 80LA(1A) and 80LA(2) are claimed.
• Verification: The declaration must be verified and submitted for each applicable assessment year.

For Buyers:

• No TDS Post Declaration: Buyers are not required to deduct TDS on payments made to the seller once a valid copy of the declaration is received.
• Mandatory Reporting: Buyers must report all payments made to such sellers, where no TDS has been deducted, in their tax deduction statements as per Section 200(3) of the Income Tax Act.

The exemption applies only to payments made during the ten consecutive assessment years specified in the seller’s declaration. Buyers will remain liable for TDS deduction under existing norms for transactions outside this timeframe or involving other sellers.

Definitions

(a) the “seller” under all circumstances shall remain an International Financial Services Centre Unit within the meaning of sub-clauses (a) and (d) of the Explanation to section 80LA of the said Act; and

(b) the expressions-

(i) “buyer” shall have the same meaning as assigned to it in the Explanation to sub-section (1) of section 194Q of the said Act;

(ii) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); and

Become a PF & ESIC expert with our comprehensive course – Enroll Now

(iii) “Unit” shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).

The Principal Director General of Income-tax (Systems) and Director General of Income-tax (Systems) are tasked with developing secure protocols for data transmission, document uploading, and record management related to this notification.

The notification is effective from January 1, 2025.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates