On 7 March 2024, the Central Board of Direct Taxes (CBDT) of India released Notification No. 28/2024, delineating regulations for exempting certain payments to a “Unit” within an International Financial Services Centre (IFSC) from withholding tax. According to the mentioned notification, there’s no obligation to deduct tax at the source for specified payments to eligible units in IFSC that have claimed benefits under section 80LA of the Act. The list of these specified units, along with the specified payments exempted from TDS, is as follows:
- Banking Unit: (Relevant TDS provisions as per Incometax Act, 1961)
- Interest income on External Commercial Borrowings /Loans- Section 195
- Professional fees- Section 194J
- Referral fees – Section 194H
- Brokerage income – Section 194H
- Commission income on factoring and forfaiting services – Section 194H
- IFSC Insurance Intermediary office: (Relevant TDS provisions as per Incometax Act, 1961)
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- Insurance commission – Section 194D
- Finance Company: (Relevant TDS provisions as per Incometax Act, 1961)
- Interest income on External Commercial Borrowings /Loans – Section 195/ 194A
- Dividend income – Section 194
- Commission income on factoring and forfaiting services – Section 194H
- Finance Unit: (Relevant TDS provisions as per Incometax Act, 1961)
- Interest income on External Commercial Borrowings /Loans – Section 195/ 194A
- Dividend income – Section 194
- Commission income on factoring and forfaiting services – Section 194H
- Fund Management entity: (Relevant TDS provisions as per Incometax Act, 1961)
- Professional fee – Section 194J
- Broker Dealer: (Relevant TDS provisions as per Incometax Act, 1961)
- Dividend – Section 194
- Investment advisor: (Relevant TDS provisions as per Incometax Act, 1961)
- Investment advisory fee- Section 194J
- Registered Distributor: (Relevant TDS provisions as per Incometax Act, 1961)
- Distribution fee and Commission fee – Section 194H
- Custodian: (Relevant TDS provisions as per Incometax Act, 1961)
- Professional fee – Section 194J
- Commission fee – Section 194H
- Credit rating agency: (Relevant TDS provisions as per Incometax Act, 1961)
- Credit rating fee – Section 194J
- Investment banker: (Relevant TDS provisions as per Incometax Act, 1961)
- Investment banker fee – Section 194J
- Debenture trustee: (Relevant TDS provisions as per Incometax Act, 1961)
- Trusteeship fee – Section 194J
- International Trade Finance Service or “ITFS”: (Relevant TDS provisions as per Incometax Act, 1961)
- Commission income – Section 194H
- Fintech Entity: (Relevant TDS provisions as per Incometax Act, 1961)
- Technical fee/Professional fee – Section 194J
- Commission income – Section 194H
The exemption from withholding applies to IFSC units that qualify for a 10-year deduction (exemption) under section 80LA of the Income Tax Act, 1961. In order to avail of the withholding exemption, the eligible IFSC unit (payee) must furnish the payer with a prescribed form (attached to the notification). This notification becomes effective on 1 April 2024.