TDS Waived for Certain Payments to IFSC Units

The Indian government has waived TDS (Tax Deducted at Source) for certain payments made to units of 14 service sectors in the International Financial Services Centre (IFSC), effective April 1, 2024. This move aims to reduce the tax compliance burden and is applicable to sectors like FinTech, banking, fund management, insurance intermediary, and investment banking.

What are the payments exempted from TDS?

According to a notification by the Central Board of Direct Taxes (CBDT), no TDS will have to be deducted for payments to units in IFSC in sectors like FinTech, banking, fund management entity, finance company, credit rating agency, insurance intermediary and investment banking .

The TDS exemption will now be applicable on payments like professional/referral fee, brokerage income, interest on External Commercial Borrowings /Loans, insurance commission, dividend and credit rating fee .

What is the process for availing the TDS exemption?

The process laid down includes the furnishing of Form No. 1 by an IFSC unit to the payer following which the payer shall not deduct the TDS . The notification shall come into force from April 1, 2024, and relaxations provided therein shall be applicable for 10 consecutive assessment years . Further, the payer will also be required to furnish the particulars of all such payments in the TDS statement .

What is the significance of this move?

The TDS waiver is expected to boost the attractiveness of IFSC as a global investment destination. The IFSC in Gujarat is being developed as a tax-neutral enclave for the financial sector .

Nangia & Co LLP Partner Amit Agarwal said the notification by the CBDT offers a significant relief by exempting specified payments made to the units in IFSC from TDS . He added that the inclusion of payments like investment advisory fees and professional fees to Investment Advisors and Fund Management entities respectively, enhances the appeal of establishing fund structures in IFSC .

“It is certainly a welcome step and no less relevant in order to promote IFSC as a global investment destination,” Agarwal said .

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