CBDT notifies exemption from Withholding Tax for Payments Made to Units of International Financial Services Centre (IFSC)

The Ministry of Finance issued Notification No. 67/2025 dated June 20, 2025, granting exemption from withholding tax (TDS) on specified payments made to units operating within International Financial Services Centres (IFSCs). The Central Board of Direct Taxes (CBDT) notified the change under the powers conferred by section 197A(1F) read with section 80LA of the Income-tax Act, 1961.

According to the notification, no tax shall be deducted at source on eligible payments made by any "payer" to a "payee" that is, a unit approved to operate in an IFSC located within a Special Economic Zone (SEZ) provided the unit is claiming benefits under Section 80LA of the Income-tax Act.

Scope of Exemption

The exemption covers a broad range of payments made to entities in sectors such as finance, investment management, clearing and settlement, and capital markets. These include:

• Professional, advisory, and technical services fees (Section 194J)
• Interest on lease and loans (Section 194A)
• Freight or hire charges (Section 194C)
• Commission payments (Section 194H)
• Rent for data centres (Section 194I)
• Penalties levied by recognised stock exchanges or clearing corporations

A detailed schedule in the notification identifies the types of IFSC entities (such as BATF service providers, broker-dealers, fund managers, finance companies, and recognised infrastructure institutions) along with the nature of payments and corresponding provisions of the Income-tax Act.

Conditions to Avail the Exemption

To benefit from the exemption, the payee (IFSC unit) must:

• Furnish a statement-cum-declaration in Form No. 1 to the payer, indicating the relevant 10 consecutive assessment years for which the benefit under Section 80LA is opted.
• Ensure the declaration is properly verified and submitted for each of those years.

The payer is required to:

• Refrain from deducting tax at source on payments made after receiving the declaration.
• Report such payments in TDS returns under Section 200 of the Act and Rule 31A of the Income-tax Rules, 1962.

The exemption will be available only for the 10-year period chosen by the IFSC unit under Section 80LA. Any payments made beyond this period or by non-eligible units will not qualify for the benefit.

The notification comes into force from July 1, 2025.

The Principal Director General of Income-tax (Systems) is tasked with laying down the digital procedures and standards for secure data capture, transmission, and compliance reporting. The format for the declaration remains consistent with Notification No. 28/2024 dated March 7, 2024.

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