The Government has exempted certain IFSC-based units from TDS on specified payments under the Income-tax Act, effective from July 1, 2025.
Saloni Kumari | Jun 23, 2025 |
Govt Notifies TDS Exemption for IFSC Units from July 2025
The Ministry of Finance (Department of Revenue) has recently issued an official notification dated June 20, 2025, stating that the central government provides exemption from the Tax Deduction at Source (TDS) under provisions of the Income-tax Act, 1961, for certain units working in International Financial Services Centres (IFSCs). This decision has been taken by the government in exercise of its powers offered under sub-section (1F) of section 197A read with subsections (1A) and (2) of section 80LA of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act). This exemption is set to come into effect on July 01, 2025. This decision has been taken to improve cash flow for IFSC units and make the process of doing business easier.
This notification is only applicable to some specific types of businesses (called units) that are based in IFSCs, including BATF Service Providers (Bookkeeping, Accounting, etc.), Broker-Dealers (like stock market agents), Finance Companies, Fund Management Entities, Recognised Clearing Corporations, Recognised Depositories and Recognised Stock Exchanges. Provided, all these units should be working in Special Economic Zones (SEZs) under IFSCs and should have been approved to carry out business in these zones.
The table below mentions what types of payments made to whom will not be subject to TDS under which sections:
| Sl. No. | International Financial Services Centre (IFSC Unit) (Payee) | Nature of Receipt (Payment) | Relevant TDS Provisions under Income tax Act |
| 1 | BATF Service Provider | Professional or Consulting or Advisory fees | 194J |
| 2 | Broker-Dealers | Payment made by Recognised Stock Exchanges | 194J |
| Commission Incentives | 194H or 194C | ||
| 3 | Finance Company | Interest on account of lease | 194A |
| Freight Charges or Hire Charges | 194C | ||
| 4 | Fund Management Entity | Portfolio management fees | 194J |
| Investment advisory fees | 194J | ||
| Management Fees | 194J | ||
| Performance Fees | 194J | ||
| 5 | Recognised Clearing Corporation | Professional or Technical Services fees | 194J |
| Interest Income | 194A | ||
| Penalty levied on clearing members | 194J | ||
| 6 | Recognised Depository | Professional or Technical or Contractual fees | 194J or 194C |
| 7 | Recognised Stock Exchange | Professional or Technical Services fees | 194J |
| Rent for Data Centres | 194I | ||
| Interest Income | 194A | ||
| Penalty levied on Members by Stock Exchanges | 194J |
Hence, if a payer like a client, bank, or stock exchange makes any of the listed payments to be said to be eligible for an IFSC unit, then they do not need to deduct TDS.
Refer to the official notification for complete information
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