The Central Board of Direct Taxes (CBDT) has issued a fresh notification – Notification No. 80/2026, dated 10th July 2026 – that removes the requirement to deduct TDS on several categories of payments made to units operating out of India’s International Financial Services Centre (IFSC), i.e., GIFT City in Gujarat.
If you deal with any entity in GIFT City – as a lender, a client paying professional fees, a distributor, or a counterparty on a financial transaction – this notification is worth understanding, even in broad strokes.
The Backstory: Why IFSC Units Get This Treatment
Under Section 147 of the new Income-tax Act, 2025 (the successor to the old Section 80LA), eligible IFSC units and Offshore Banking Units enjoy a 100% tax deduction on their income for a chosen block of consecutive years – effectively a long tax holiday. This benefit was recently widened: a unit can now pick any 20 consecutive years within a 25-year window (measured from the year it received its registration/permission) to claim this deduction.
In simple terms: for whichever 20 years the unit selects, its eligible income is tax-free at the entity level.
The Problem This Notification Solves
Here’s the mismatch that used to exist: even though an IFSC unit’s income might be fully deductible (i.e., untaxed), the payer making payments to it – say, a bank paying interest, or a company paying professional or brokerage fees – was still technically required to deduct TDS at source. That TDS would then sit with the tax department until the IFSC unit filed a return and claimed a refund. Needless friction, needless paperwork, blocked cash flow – for tax that was never going to be payable in the first place.
Notification No. 80/2026 fixes this by allowing the payer to skip TDS altogether, provided a specific declaration is on file.
Who’s Covered
The relief applies to 14 categories of IFSC entities, including Banking Units, Finance Companies, Finance Units, Fund Management Entities, Broker Dealers, Investment Advisers, Registered Distributors, Custodians, Credit Rating Agencies, Investment Bankers, Debenture Trustees, ITFS entities, IFSC Insurance Intermediary Offices, and FinTech Entities.
Depending on the category, the exempted payments include interest on external commercial borrowings/loans, professional and technical fees, referral fees, brokerage, commission, dividend income, insurance commission, investment advisory fees, distribution fees, and trusteeship fees.
How the Exemption Actually Works
The relief is not automatic – it is declaration-driven:
- The IFSC unit (the payee) furnishes a “Statement-cum-Declaration” in the newly prescribed Form No. 1(N) to the payer. This form specifies the unit’s registration details and, crucially, the 20-year period it has opted to claim its deduction under Section 147.
- A fresh, verified declaration is required for each tax year within that opted 20-year period – it is not a one-time filing. The unit must furnish and verify Form 1(N) separately for every year it wants the exemption to apply.
- Once the payer has this declaration, it stops deducting TDS on qualifying payments made from that point onward – the relief is not retroactive to payments made before the form was received.
- The payer still has to report these un-deducted payments in its regular TDS statements, so there is a compliance trail with the department even though no tax is withheld.
- The exemption holds only for the years the IFSC unit has actually opted into. Outside that declared window, normal TDS rules apply again.
Effective Date
Although notified on 10th July 2026, the notification has been given retrospective effect from 1st April 2026 – the start of the current tax year – so it applies to the whole of FY 2026-27 onward, not just from the notification date.
The Bottom Line
This is a compliance-simplification measure, not a new tax break. The underlying tax holiday for IFSC units already existed under Section 147; this notification simply aligns the TDS machinery with that reality, so genuine GIFT City entities and their counterparties are not stuck deducting and later refunding tax that was never due. For payers dealing with IFSC counterparties, the practical takeaway is straightforward: before making payments covered under this notification, check whether a valid Form 1(N) declaration is on file – if it is, TDS can be skipped; if it is not, deduct as usual.
Download the Official Notification:
To read the full details of Notification No. 80/2026, dated 10th July 2026, you can download the official document from the following link:
Download Notification Document
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