• Notification Date: 14-03-2024
• Notification No: N/A

Income Tax TDS Exemption Provisions applicable from April 1

The government, starting from April 1, has granted TDS exemptions for specific payments to units within 14 service sectors in the International Financial Services Centre (IFSC). According to a notification by the Central Board of Direct Taxes (CBDT), no TDS deductions are required for payments to units operating in sectors like FinTech, banking, fund management entities, finance companies, credit rating agencies, insurance intermediaries, and investment banking.
The lists of IFSC Units/ Payee includes Banking Unit, IFSC Insurance Intermediary office, Finance Company, Finance Unit, Fund Management entity, Broker Dealer, Investment advisor, Registered Distributor, Custodian, Credit rating agency, Investment banker, Debenture trustee, International Trade Finance Service or “ITFS” and FinTech Entity.

The receipts exempted from TDS are Interest income on External Commercial Borrowings /Loans, Professional fees, Referral fee, Commission income on factoring and forfeiting service, Dividend income..etc. For each payee, the nature of receipts are different and the relevant TDS provisions too.

Previously, withholding tax exemptions were limited to specific payments related to leasing ships and aircraft. However, the recent notification broadens the scope, including various payments like interest on ECBs, professional fees, referral fees, and dividend income to finance companies and banking units established in IFSC.

The process involves IFSC units submitting Form No. 1 to the payer, after which the payer is exempt from deducting TDS. The effective date for this notification is April 1, 2024, with the relaxations applicable for ten consecutive assessment years. Taxpayers are also required to furnish details of such payments in the TDS statement. This development is a commendable step towards promoting IFSC as a global investment destination. The notification is enclosed with a Form 1, which shall be furnished by a Unit of International Financial Services Centre ( ‘payee’ ) to the ‘payer’.

The Form 1 contains following details:

1. Name of the assessee;

2. Permanent Account Number;

3. Name and address of the Unit of International Financial Services Centre;

4. Date of permission obtained under clause (a) of sub-section (1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949) or permission or registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or permission or registration under the International Financial Services Centres Authority Act, 2019 ( 50 of 2019 ) or any other relevant law, as mentioned in sub-section (1A) of section 80LA of the Income-tax Act, 1961;

5. Statement-cum-Declaration; and

6. Verification.