TDS Exemption in GIFT City IFSC from July 1 2025: Complete Guide

The Government of India has introduced a major tax relief for businesses operating in GIFT City IFSC by exempting Tax Deducted at Source (TDS) on specified payments from July 1, 2025. This move is aimed at improving liquidity, reducing compliance burden, and making GIFT City more competitive as a global financial hub.

For businesses, fund managers, fintech firms, and financial institutions, understanding how this TDS exemption works and how to apply it correctly is critical to fully benefit from this regulatory change.

What Does the Notification Say?

The CBDT Notification No. 67/2025 allows zero TDS on specified payments made to IFSC units, effective July 1, 2025.

This applies to payments for:

IFSC Entity	Nature of Payment	TDS Section (Now Exempt)
BATF Service Providers	Professional/Advisory Fees	194J
Broker-Dealers	Commission/Incentives from Stock Exchanges	194J / 194H / 194C
Finance Companies	Interest on Lease, Freight or Hire	194A / 194C
Fund Management Entities	PMS/Advisory/Performance Fees	194J
Clearing Corporations	Tech/Prof Fees, Interest, Penalties	194J / 194A
Recognised Depositories	Contractual/Tech Fees	194J / 194C
Stock Exchanges	Tech Fees, Data Rent, Penalties, Interest	194J / 194A / 194I

Conditions to Claim TDS Exemption:

1. Form 1 Declaration:

   • The IFSC Unit (Payee) must submit a statement-cum-declaration (Form No. 1) to the payer.

   • It should cover 10 consecutive assessment years for which the 80LA deduction is claimed.

     
     

2. Compliance by Payer:

   • No TDS should be deducted after receiving Form 1.

   • The payer must report such payments in quarterly TDS statements under Section 200(3), read with Rule 31A.

Why GIFT City TDS Exemption Matters:

• Enhances liquidity by avoiding upfront tax deduction.

• Boosts investor and business confidence in GIFT City.

• Reduces paperwork & tax credit mismatch for IFSC units.

• Aligns with the 10-year tax holiday under Section 80LA.

Effective Date:

1st July 2025

Legal Backing:

• Section 197A(1F) + Section 80LA(1A) & 80LA(2) of the Income Tax Act

• Applicable only for the approved business income of IFSC units under SEZ rules

What is the TDS Exemption for GIFT City IFSC Units

TDS exemption in GIFT City IFSC means that no tax is deducted at source on specified payments made to eligible IFSC units, provided they meet conditions under Section 80LA of the Income Tax Act.

This exemption applies to income such as professional fees, interest, and advisory payments, helping IFSC entities avoid cash flow blockage due to upfront tax deduction.

Who is Eligible for TDS Exemption in GIFT City

Entities operating in GIFT City IFSC and claiming tax benefits under Section 80LA are eligible for TDS exemption on specified payments.

Eligible entities include:

• Fund Management Entities

• Broker-dealers

• Finance companies

• Stock exchanges and clearing corporations

The exemption applies only when income qualifies under IFSC-approved business activities.

How to Claim TDS Exemption in GIFT City IFSC

To claim the benefit:

1. Submit Form No. 1 declaration to the payer

2. Ensure eligibility under Section 80LA

3. Confirm the applicable assessment years

4. The payer must not deduct TDS after receiving the declaration

5. Report transactions in quarterly TDS filings

This process ensures proper compliance while availing the zero TDS benefit.

Example of TDS Exemption Benefit

Without TDS exemption:

• ₹1 crore payment → TDS deducted → reduced cash flow

With TDS exemption:

• Full ₹1 crore received → better liquidity

FAQs on TDS Exemption in GIFT City IFSC

1. What is the effective date of the TDS exemption?

Answer: The TDS exemption for IFSC units is effective from July 1, 2025.

2. Is the TDS exemption automatic?

Answer: No, the IFSC unit must submit Form No. 1 declaration to claim the exemption.

3. Does this apply to all payments?

Answer: No, only specified payments under the notification qualify for TDS exemption.

Conclusion:

The introduction of TDS exemption for GIFT City IFSC units is a significant step toward strengthening India’s position as a global financial hub. By reducing tax friction and improving liquidity, this move makes IFSC operations more efficient and attractive for businesses.

However, to fully benefit from this exemption, entities must ensure proper documentation, compliance, and reporting. A well-planned approach can help businesses maximize tax efficiency while staying aligned with regulatory requirements.

Book a Tax Compliance Call

Detailed Circular by CBDT

Need Help?

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• Form 1 Declarations

• 80LA Compliance Structuring

• Zero-TDS Implementation in Your ERP

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