CBDT notifies no TDS on specified payments to 14 types of IFSC units
Key points
- CBDT Notification No. 80/2026 says no tax is to be deducted at source on specified payments to 14 categories of IFSC units.
- It affects businesses paying fees, interest, commission or dividends to eligible units in an International Financial Services Centre, and the units themselves.
- It is deemed in force from 1 April 2026; payers stop deducting once they receive the unit's statement-cum-declaration in Form No. 1(N).
The Central Government, through the Central Board of Direct Taxes (CBDT), has notified that no tax is to be deducted at source (TDS) on specified payments made to 14 categories of units in an International Financial Services Centre (IFSC). Notification No. 80/2026, dated 10 July 2026, is issued under section 400(1) read with section 147 of the Income-tax Act, 2025 and is deemed to have come into force on 1 April 2026.
What has changed
The notification lists, for each type of IFSC unit (the payee), the receipts on which a payer need not deduct tax, and the TDS provision under section 393(1) or 393(2) of the Act that is switched off.
| IFSC unit | Payments covered |
|---|---|
| Banking Unit | Interest on external commercial borrowings or loans; professional fees; referral fees; brokerage; commission on factoring and forfaiting services |
| IFSC Insurance Intermediary office | Insurance commission |
| Finance Company; Finance Unit | Interest on external commercial borrowings or loans; dividend; commission on factoring and forfaiting services |
| Fund management entity | Professional fee |
| Broker dealer | Dividend |
| Investment adviser | Investment advisory fee |
| Registered distributor | Distribution fee and commission fee |
| Custodian | Professional fee; commission fee |
| Credit rating agency | Credit rating fee |
| Investment banker | Investment banker fee |
| Debenture trustee | Trusteeship fee |
| International Trade Finance Service (ITFS) | Commission income |
| FinTech entity | Technical or professional fee; commission income |
The relief comes with conditions:
- The IFSC unit must give the payer a statement-cum-declaration in Form No. 1(N), with details of the twenty consecutive tax years for which it opts to claim the deduction under section 147, and must furnish and verify it for each of those tax years.
- The payer must not deduct tax on payments made or credited after the date it receives a copy of Form No. 1(N).
- The payer must still report all payments made without deduction under this notification in its TDS statement under section 397(3)(b), read with rule 219 of the Income-tax Rules, 2026.
- The relief applies only during the twenty consecutive tax years declared in the form. For any other year, the payer must deduct tax.
- The IFSC unit must be registered under the relevant regulation or circular of the International Financial Services Centres Authority.
Form No. 1(N) asks for the unit’s name, PAN, address, contact details and tax year, the permission or registration it holds, the period for which it opts for the deduction and the initial tax year of the claim. It must be signed by a person competent to sign the unit’s return of income under section 265.
Who is affected
Any payer, including Indian companies and startups, that pays the listed fees, interest, commission or dividends to an eligible IFSC unit. The listed IFSC units, each defined by reference to the relevant IFSCA regulations or circulars, are also affected.
What this means for businesses
Finance teams that use IFSC-based lenders, fund managers, investment advisers, custodians, rating agencies, investment bankers, debenture trustees or fintech service providers can pay these sums without TDS once they hold the unit’s Form No. 1(N) for that tax year. Payments made before the form is received are not covered. The notification says the retrospective effect adversely affects no person, but it does not say how tax already deducted between 1 April 2026 and the date of the notification is to be treated. Payers should check with an adviser on that point.
What to do now
- Identify payments to IFSC units that fall in the table above.
- Ask each such unit for its Form No. 1(N) for the current tax year before releasing payment.
- Report payments made without TDS in the TDS statement filed under rule 219.
Source: CBDT Notification No. 80/2026.
This update was written with AI from the official source above and automatically fact-checked against it before publishing. It is general information, not professional advice. Check the source, or talk to a Chartered Accountant, before acting on it.