In a significant step towards enhancing the competitiveness and operational efficiency of entities set up in India’s International Financial Services Centre (IFSC), the Central Board of Direct Taxes (CBDT) has issued a notification1 exempting the withholding requirements on specified payments made to IFSC Unit(s). India’s only approved IFSC Unit currently is the Gujarat International Finance Tec-City (GIFT City).
This notification aligns with the government’s ongoing efforts to promote GIFT City as a globally competitive financial jurisdiction. Streamlining tax compliance and reducing withholding obligations for cross-border and institutional flows has been a key ask of businesses contemplating setting up operations in GIFT City.
Key Takeaways: Under the notification, no tax is required to be withheld on specified payments made by a specified payer to an IFSC Unit, provided the unit is eligible for deduction under Section 80LA of the Income-tax Act, 1961, and has opted for the 10-year exemption window.
Covered Categories of IFSC Units and Exempted Payments:
| Sr. No. | Payer | Nature of payments to IFSC |
| 1 | BATF2 Service Providers | Professional/Consulting/Advisory fees |
| 2 | Broker-Dealers | Payment made by Recognised Stock Exchanges, Commission Incentives |
| 3 | Finance Company | Interest on account of lease; Freight Charges or Hire Charges |
| 4 | Fund Management Entity | Portfolio management fees; Investment advisory fees; Management Fees; Performance Fees |
| 5 | Recognised Clearing Corporation | Professional or Technical Services fees; Interest Income Penalty levied on clearing members |
| 6 | Recognised Depository | Professional or Technical or Contractual fees |
| 7 | Recognised Stock Exchange | Professional or Technical Services fees; Rent for Data Centres; Interest Income; Penalty levied on Members by Stock Exchanges |
Conditions for Exemption:
For the IFSC Unit:
- Must furnish a statement-cum-declaration in Form No. 13 to the payer, indicating the 10 consecutive assessment years for which deduction under Section 80LA is opted.
- Declaration must be verified and furnished annually for each previous year relevant to 10 consecutive assessment years for which deduction under Section 80LA is opted.
For the Payer:
- No withholding is to be done on payments made after receipt of Form No. 1.
- Must furnish the details of all such payments in its withholding return filed under section 200(3) read with Rule 31A of the Income-tax Rules, 1962.
Effective Date: July 01, 2025
Applicability: The relaxation is strictly limited to income earned by the IFSC unit from its approved business activities conducted within the Special Economic Zone framework and only for the 10-year exemption period opted under section 80LA.
BMR Legal Note: This is yet another significant step taken by the government towards ease of doing business in GIFT City. However, concerns around the reporting requirements for units operating in GIFT City which do not exist for Foreign Portfolio Investors operating out of overseas IFSCs, and no clarity on applicability of General Anti-Avoidance Rules continue to be impediments for businesses considering relocating to GAAR.
1 Notification No. 67/2025, dated June 20, 2025, under section 197A(1F) read with sections 80LA(1A) and (2) of the Income-tax Act, 1961 (“the Act”)
2 Bookkeeping, Accounting, Taxation, and Financial crime compliance services
3 Same as specified in Form No. 1 of Notification [No.28/2024] Number S.O 1135 (E), dated the 7th March, 2024
To know more, click: CBDT notifies withholding exemption on specified payments to IFSC Units - BMR Legal