CBDT’s Notification No. 80/2026 exempts specified payments to 14 categories of eligible IFSC units from TDS. If you pay — or receive — fees, interest, commission or dividends to or from a GIFT City entity, here is exactly what changed and what you need to do about it.
What Just Happened
On 10 July 2026, CBDT issued Notification No. 80/2026 [F. No. 275/19/2026-IT(B)], exempting specified payments — interest, dividends, professional fees, commission, brokerage, and other financial-services-related income — made to eligible units operating in India’s International Financial Services Centre (IFSC), i.e., GIFT City, Gujarat, from the requirement to deduct TDS. Although notified on 10 July, the notification has been given retrospective effect from 1 April 2026 — the start of Tax Year 2026-27 — so it covers the whole of the current tax year, not just payments made after the notification date.
A compliance-simplification measure, not a new tax break
It’s worth being precise with clients about what this notification actually does. It does not create a new income-tax exemption — the underlying tax relief for eligible IFSC units already existed. What Notification No. 80/2026 removes is the withholding obligation on the payer’s side, so eligible IFSC units no longer have their cash blocked at source only to claim it back through a refund later. The explanatory memorandum to the notification confirms that its retrospective operation does not adversely affect any person — a standard formulation, but worth having on file since it forecloses an obvious objection.
Why This Matters for Your Clients
GIFT City has moved from a policy aspiration to a genuine operating hub for banking units, fund managers, insurance intermediaries, and financial-services entities transacting with counterparties across India and abroad. Any client who is a lender, a client paying professional or advisory fees, a distributor, or a counterparty on a financial transaction with a GIFT City entity is directly affected by this notification — whether they are the one deducting TDS today, or the GIFT City entity receiving payments net of TDS that it then has to claim back.
For a practice advising on cross-border and structured finance, corporate treasury, or fund-related transactions, this notification is squarely relevant even for clients who have never set foot in GIFT City themselves — anyone paying an IFSC-based lender, fund manager, or service provider needs to know whether they should still be deducting tax.
The Legal Basis — and a Numbering Trap to Avoid
The notification has been issued under Section 400(1), read with Section 147, of the Income-tax Act, 2025. Section 400(1) is the Board’s general power to notify categories of payments on which tax need not be deducted at source (the successor to old Section 197A). Section 147 of the new Act carries forward the substance of the profit-linked deduction for IFSC units that previously sat under Section 80LA of the Income-tax Act, 1961.
Don’t confuse this Section 147 with reassessment
This is a genuine trap in cross-referencing the new Act: under the old 1961 Act, Section 147 deals with income escaping assessment (reassessment) — a completely unrelated area of law. Under the new 2025 Act, the section numbers have been fully reshuffled, and Section 147 now houses the IFSC profit-linked deduction provision instead (the old Section 80LA equivalent), while reassessment has moved to Section 279. When cross-checking notifications, memos, or old research notes against the new Act, always confirm which Act a “Section 147” reference belongs to before relying on it — the two provisions have nothing to do with each other.
Income Tax Act 1961
- Board’s power to notify no-TDS payments: Section 197A(1F)
- IFSC profit-linked deduction: Section 80LA
- Deduction window under old law: 10 consecutive assessment years
Income Tax Act 2025
- Board’s power to notify no-TDS payments: Section 400(1)
- IFSC profit-linked deduction: Section 147
- Declaration window under Notification 80/2026: 20 consecutive tax years (as opted by the payee in Form 1(N))
Who Qualifies: 14 Categories of IFSC Units
The relief extends to eligible units across 14 categories of IFSC entities, spanning most of the financial-services activity now operating out of GIFT City:
Banking Units
Branches of banks operating within the IFSC.
Finance Companies & Finance Units
Non-bank lending and financing entities set up in the IFSC.
Fund Management Entities
Entities managing AIFs and other pooled investment vehicles from GIFT City.
Broker Dealers
IFSC-registered brokers and dealers.
Investment Advisers
SEBI-IFSCA registered investment advisory entities.
Registered Distributors
Distributors of financial products operating within the IFSC framework.
Custodians
Custody service providers for IFSC-based funds and investors.
Credit Rating Agencies
IFSC-based rating agencies.
Investment Bankers
Investment banking entities operating from the IFSC.
Debenture Trustees
Trusteeship service providers for IFSC-issued debt instruments.
IFSC Insurance Intermediary Offices
Insurance intermediation entities within the IFSC.
FinTech Entities & Others
Additional categories notified, including specified FinTech and related financial-services units.
The precise payments exempted differ by category — a banking unit’s exempted receipts (interest on ECBs/loans, professional fees, referral fees, brokerage, and commission on factoring/forfaiting) are not identical to a finance company’s (interest on ECBs, dividend income, and factoring/forfaiting commission), so always check the specific entry applicable to your client’s counterparty type rather than assuming uniform treatment across all 14 categories.
What Payments Are Covered
| Payment Type | Typically Exempted For |
|---|---|
| Interest on External Commercial Borrowings / Loans | Banking Units, Finance Companies, Finance Units |
| Professional / Technical Fees | Banking Units and specified other categories |
| Referral Fees | Banking Units |
| Brokerage Income | Banking Units, Broker Dealers |
| Commission on Factoring & Forfaiting Services | Banking Units, Finance Companies, Finance Units |
| Dividend Income | Finance Companies, Finance Units, and specified holding structures |
| Insurance Commission | IFSC Insurance Intermediary Offices |
| Investment Advisory Fees | Investment Advisers |
| Distribution Fee / Commission Fee | Registered Distributors |
| Trusteeship Fee | Debenture Trustees |
| Credit Rating Fee | Credit Rating Agencies |
| Investment Banker Fee | Investment Bankers |
Match the payment to the specific IFSC unit’s notified list
This table is illustrative. The notification maps each of the 14 categories to its own specific list of exempted payment types and the corresponding TDS provisions of the 2025 Act that will not apply — before advising a payer to stop deducting tax, confirm the exact category the payee falls into and cross-check it against that category’s notified list in the Gazette notification itself.
How the Exemption Works — Form 1(N)
The IFSC unit furnishes Form No. 1(N)
The payee (the eligible IFSC unit) must furnish a Statement-cum-Declaration in the newly prescribed Form No. 1(N) to the payer, specifying the twenty consecutive tax years for which it has opted to claim the deduction available under Section 147.
The declaration must be furnished and verified year by year
Even though the 20-year window is chosen upfront, Form 1(N) must be furnished and verified separately for each tax year covered by that option — this is not a one-time, set-and-forget declaration, and the payer should expect (and request) a fresh, verified declaration each tax year.
The payer stops deducting TDS on receipt of a valid declaration
Once the payer has received a properly furnished and verified Form 1(N) for the relevant tax year, it is not required to deduct TDS on the eligible payments covered by that declaration for that year.
The benefit is strictly time-boxed to the opted years
The no-TDS treatment applies only during the twenty consecutive tax years the payee has declared. For any tax year outside that opted period, the payer reverts to deducting TDS under the ordinary provisions — there is no indefinite or automatic continuation.
The Payer Still Has Obligations
Not deducting TDS does not mean the payment disappears from the compliance trail. The payer must still report all such payments in the prescribed TDS statement under Section 397(3)(b), read with Rule 219 of the Income-tax Rules, 2026 — the exemption is from the deduction obligation, not from the reporting obligation. Payers should treat Form 1(N) exactly as they would a lower/nil-deduction certificate: file it, retain it, and be ready to produce it if the TDS return is questioned.
No declaration, no exemption
The relief is not automatic. A payer that stops deducting TDS on a GIFT City payment without first receiving a valid, verified Form 1(N) for the relevant tax year is exposed to being treated as an assessee-in-default for the shortfall, along with the usual interest and penalty consequences under the TDS default provisions. Confirm the declaration is on file before changing the deduction behaviour on any account.
Checklist: If You Are the Payer
Identify whether your GIFT City counterparty falls within one of the 14 categories
Confirm the payee’s IFSC registration category before assuming eligibility.
Match the specific payment type against that category’s notified list
A payment that looks similar to an exempted category (e.g., “advisory fees” versus “investment advisory fees”) may or may not be covered — check the precise wording.
Obtain a valid Form 1(N) before changing deduction behaviour
Do not stop deducting TDS on the strength of the notification alone — insist on the payee’s verified declaration for the relevant tax year first.
Continue reporting the payment in your TDS statement
Report under Section 397(3)(b) read with Rule 219, even though no tax is being deducted — this keeps the payment on record and avoids a mismatch flag later.
Re-verify the declaration every tax year
Build this into your annual TDS-compliance calendar rather than treating the first Form 1(N) received as good indefinitely.
Checklist: If Your Client Is the IFSC Unit
Confirm eligibility under Section 147
The TDS exemption rides on the underlying profit-linked deduction eligibility — ensure the unit’s Section 147 (old Section 80LA) position is sound before relying on the TDS relief built on top of it.
Decide the 20-year opt-in window carefully
Since the declared period is a 20-consecutive-year window, model out the unit’s expected profitability and payment flows before locking in the opted years — this is a strategic, not purely administrative, decision.
Furnish Form 1(N) proactively to each payer, every year
Don’t wait for a payer to ask — proactively furnish the verified declaration each tax year to every counterparty making an eligible payment, to avoid unnecessary withholding and the follow-up refund claim.
Keep the declaration paper trail airtight
Ensure Form 1(N) is signed and verified by a person authorised to sign the entity’s income-tax return, and retain copies of every declaration furnished, to whom, and for which tax year.
Common Questions
Does this notification create a new tax exemption for IFSC units?
No. The underlying income-tax relief for eligible IFSC units under Section 147 (old Section 80LA) already existed. This notification removes the withholding-tax obligation on the payer, so eligible units are not left waiting for a refund of tax that would ultimately not have been payable in any event.
Is the exemption automatic once a payment falls within a notified category?
No. It is declaration-driven — the payer may only stop deducting TDS after receiving a valid, verified Form 1(N) from the payee for the specific tax year in question.
What if the payment type isn’t listed for the payee’s specific IFSC category?
Then ordinary TDS provisions continue to apply. The notification is deliberately structured category-by-category and payment-by-payment rather than as a blanket exemption for all payments to any IFSC entity.
Does the payer need to file anything differently on the TDS return?
Yes — the payment must still be reported in the prescribed TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026, even though no tax has been deducted on it.