Executive Summary

The Central Board of Direct Taxes (CBDT) has issued Notification No. 80/2026, granting exemption from Tax Deduction at Source (TDS) on specified payments made to eligible units located in International Financial Services Centres (IFSCs) under the Income-tax Act. The eligible streams include interest, dividends, professional fees, and financial service revenues. This measure enhances liquidity for GIFT City entities by removing withholding tax bottlenecks.

Regulatory Background

Units operating in IFSCs are eligible for profit-linked tax deductions under the statutory framework (such as Section 80LA of the Income-tax Act, 1961). However, counterparties making payments to these units were previously required to deduct tax at source under standard withholding provisions unless a lower/nil deduction certificate was furnished. This often led to administrative friction and working capital lock-ins pending refund claims.

What Has Changed?

CBDT has formally notified that no tax shall be deducted at source on specified payments received by an eligible IFSC unit, provided the payee furnishes the prescribed self-declaration to the payer.

Key Changes Comparison

Who Will Be Affected?

• Eligible Units in GIFT City IFSC (Banking, Fund Management, Insurance, Finance Units)
• Domestic and foreign counterparties making payments to IFSC units
• Tax deductors, accounts payable, and tax compliance teams

Effective Date & Applicability

• Date of Issue: 10 July 2026
• Effective Date: Applicable for payments from 1 April 2026 onwards
• Applicability: Payments made to IFSC units holding a valid registration and active tax holiday status.

Compliance Impact

• Payer Action: Tax deductors must obtain the requisite self-declaration from IFSC counterparties prior to releasing gross payments without withholding tax.
• Reporting: Deductors must continue reporting these non-deduction transactions in quarterly TDS returns under the designated exemption provisions.
• IFSC Entity Action: IFSC units must verify that their Letter of Approval (LoA) and tax holiday eligibility remain valid before issuing declarations.

KGS Practical Takeaway: This notification removes an operational bottleneck for GIFT City entities. Corporate groups transacting with IFSC units should update their accounts payable workflows to suppress automated TDS withholding upon receipt of the requisite declaration.

Source / Reference

• Authority: Central Board of Direct Taxes (CBDT), Ministry of Finance
• Document: Notification
• Reference No.: Notification No. 80/2026
• Date: 10 July 2026