Govt Excludes TDS For Certain Payments To Units In IFSC From April 1

The exemption from TDS will cover payments such as professional/referral fees, brokerage income, interest on external commercial borrowings /loans, insurance commissions, dividends, and credit rating fees.

The government has decided to exempt certain payments made to units of 14 service sectors in the IFSC from the TDS regulations starting on April 1 to lessen the burden of tax compliance. According to a notification issued by the Central Board of Direct Taxes (CBDT), no TDS will be required to be deducted for payments made to units in sectors including FinTech, banking, fund management entities, finance companies, credit rating agencies, insurance intermediaries, and investment banking, as reported by PTI.

The exemption from TDS will now cover payments such as professional/referral fees, brokerage income, interest on external commercial borrowings /Loans, insurance commissions, dividends, and credit rating fees.

A tax-neutral enclave for the financial sector is being established at Gujarat's International Financial Services Centre (IFSC).

Central Board of Direct Taxes Includes Various Payments

Previously, withholding tax exemptions were limited to ship leasing and aircraft leasing payments, among others. However, the recent notification expands the scope to include various payments such as interest on ECBs, professional fees, referral fees, dividend income to finance companies, and banking units established in the IFSC.

Nangia & Co LLP Partner Amit Agarwal stated that the CBDT's notification offers a significant relief by excluding specified payments made to the units in IFSC from TDS. "From an M&A perspective, 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," Agarwal added.

The process outlined entails the IFSC unit furnishing Form No. 1 to the payer, after which the payer is relieved from deducting TDS. The notification will be effective from April 1, 2024, and the relaxation provided therein will apply for 10 consecutive assessment years.

Moreover, the payer will be required to provide details of all such payments in the TDS statement. "It is certainly a welcome step and no less relevant in order to promote IFSC as a global investment destination," Agarwal added.