No TDS on IFSC Payments 2026: CBDT Notification 80/2026, Form 1(N) and GIFT City Rules

The Central Board of Direct Taxes (CBDT) has introduced an important TDS relief for specified payments made to eligible units operating in an International Financial Services Centre (IFSC), including units located in GIFT City, Gujarat.

Through Notification No. 80/2026 dated 10 July 2026, the government has notified that tax shall not be deducted at source on specified payments received by eligible IFSC units, subject to prescribed conditions.

The notification has been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025. It has been given retrospective effect from 1 April 2026, meaning the relief applies from the beginning of Tax Year 2026-27, subject to the conditions prescribed in the notification.

The relief covers specific receipts such as interest on certain external commercial borrowings and loans, professional fees, referral fees, brokerage, commission, dividend, investment advisory fees, distribution fees and other specified financial-service receipts.

However, taxpayers should not interpret this as a blanket exemption from TDS on every payment made to a GIFT City or IFSC entity.

The notification contains a category-wise list of eligible IFSC units and the specific receipts covered for each category.

What Is CBDT Notification No. 80/2026?

CBDT Notification No. 80/2026 was issued on 10 July 2026.

The notification provides that no TDS shall be deducted on specified payments made by a payer to a qualifying unit of an International Financial Services Centre, provided the conditions mentioned in the notification are satisfied.

The notification is important because IFSC units can be eligible for a deduction under Section 147 of the Income-tax Act, 2025.

Without the TDS relief, tax could otherwise be deducted from certain receipts and the IFSC unit could subsequently need to claim the corresponding tax credit or refund.

The new notification seeks to simplify this cash-flow and compliance issue by allowing specified payments to be made without TDS where the prescribed conditions are fulfilled.

From When Is the IFSC TDS Exemption Applicable?

Although Notification No. 80/2026 was issued on 10 July 2026, it states that the notification shall be deemed to have come into force from 1 April 2026.

Therefore, the relevant period begins from:

1 April 2026

This means the notification covers Tax Year 2026-27 from its beginning, rather than applying only to payments made after 10 July 2026.

However, the procedural condition relating to the Form No. 1(N) declaration remains important.

The payer is specifically permitted not to deduct tax on payments made or credited after the date on which the payer receives a copy of the Form No. 1(N) statement-cum-declaration from the IFSC payee.

Is There No TDS on All Payments to GIFT City IFSC Units?

No.

This is the most important point to understand.

Notification No. 80/2026 does not create a general exemption for every payment made to every business located in GIFT City.

The exemption is based on two important tests:

1. The recipient must be a qualifying IFSC unit covered by the notification.

2. The payment must be one of the specific receipts listed against that particular category of IFSC unit.

For example, the notification covers interest on External Commercial Borrowings or loans for certain categories, while professional fees are covered for certain other categories.

Similarly, dividend is specifically covered for Finance Companies, Finance Units and Broker Dealers.

Therefore, the payer must check the exact category of the IFSC unit and the nature of payment before applying nil TDS.

Which IFSC Units Are Covered Under Notification 80/2026?

The notification contains 14 categories of IFSC units.

The covered categories are:

The notification also specifies the regulatory definitions and registration requirements applicable to these categories.

Which Payments Are Covered by the No-TDS Exemption?

The covered payments vary depending on the category of IFSC unit.

This category-wise approach is extremely important for TDS compliance.

Banking Unit

For an eligible Banking Unit, the notification covers:

• Interest income on External Commercial Borrowings/Loans

• Professional fees

• Referral fees

• Brokerage income

• Commission income on factoring and forfaiting services

The notification maps these receipts to the corresponding TDS provisions under Section 393 of the Income-tax Act, 2025.

IFSC Insurance Intermediary Office

For an eligible IFSC Insurance Intermediary Office, the covered receipt is:

• Insurance commission

Therefore, the no-TDS treatment is specifically linked to insurance commission received by the qualifying IFSC insurance intermediary office.

Finance Company

For a qualifying Finance Company, the notification covers:

• Interest income on External Commercial Borrowings/Loans

• Dividend income

• Commission income on factoring and forfaiting services

These are specifically listed in the notification.

Finance Unit

For a qualifying Finance Unit, the covered receipts are:

• Interest income on External Commercial Borrowings/Loans

• Dividend income

• Commission income on factoring and forfaiting services

Therefore, dividend is not a general exemption available to every type of IFSC entity.

Fund Management Entity

For an eligible Fund Management Entity, the specified receipt is:

• Professional fee

The exemption therefore needs to be matched with the recipient's status and the nature of the payment.

Broker Dealer

For a qualifying Broker Dealer, the specified receipt is:

• Dividend income

Again, this does not mean every dividend paid to every IFSC unit is automatically free from TDS. The recipient must fall within the relevant category.

Investment Adviser

For an eligible Investment Adviser, the covered receipt is:

• Investment advisory fee

The payment must correspond to the specified financial service and eligible IFSC unit.

Registered Distributor

For a qualifying Registered Distributor, the covered receipts are:

• Distribution fee

• Commission fee

These are specifically listed in the notification.

Custodian

For an eligible Custodian, the notification covers:

• Professional fee

• Commission fee

The payment must fall within the prescribed category.

Credit Rating Agency

For an eligible Credit Rating Agency operating as a qualifying IFSC unit, the specified receipt is:

• Credit rating fee

The notification links this category to the applicable TDS provision under Section 393(1).

Investment Banker

For an eligible Investment Banker, the specified receipt is:

• Investment banker fee

This is the specific receipt identified in the notification for this category.

Debenture Trustee

For an eligible Debenture Trustee, the covered receipt is:

• Trusteeship fee

The exemption therefore does not automatically extend to every payment made to a debenture trustee.

International Trade Finance Service or ITFS

For a qualifying ITFS entity, the specified receipt is:

• Commission income

The entity must meet the relevant regulatory requirements specified in the notification.

FinTech Entity

For an eligible FinTech Entity, the notification covers:

• Technical fee

• Professional fee

• Commission income

These receipts are specifically listed for the FinTech Entity category.

IFSC TDS Exemption 2026: Complete Payment Table

The complete category-wise structure can be summarised as follows:

This table is based on the payment categories specified in Notification No. 80/2026.

What Is Form 1(N)?

Form No. 1(N) is a statement-cum-declaration that must be furnished by the eligible IFSC unit to the payer.

This form is a key condition for applying the no-TDS relief.

The IFSC unit has to provide details including:

• Name

• PAN

• Name of the IFSC unit

• Address of the IFSC unit

• Contact number

• Email ID

• Relevant tax year

• Permission or registration details

• Authority under which the registration/permission was obtained

• Registration/permission date

• Reference number

• Period for which the Section 147 deduction is opted

• Initial tax year for which deduction was claimed

The form also contains a declaration and verification by the authorised person.

Why Is Form 1(N) Important?

Form 1(N) is important because the payer cannot simply decide on its own that an IFSC payment is subject to nil TDS.

The notification provides that the payer shall not deduct tax on payment made or credited after the date of receipt of a copy of the statement-cum-declaration in Form 1(N) from the payee.

Therefore, the practical sequence is:

IFSC Unit → Gives Form 1(N) → Payer verifies eligibility → Payment covered by notification → No TDS

The payer should preserve the declaration as part of its tax-compliance records.

Does Form 1(N) Have to Be Given Every Year?

Yes, the notification contains an annual declaration requirement within the opted period.

The payee has to furnish and verify the statement-cum-declaration for each tax year out of the twenty consecutive tax years for which it opts to claim the Section 147 deduction.

Therefore, a payer should not assume that an old declaration automatically covers every future tax year.

The relevant tax year and validity of the declaration should be checked.

How Long Is the TDS Exemption Available?

The relief is available only during the twenty consecutive tax years for which the IFSC unit opts to claim the deduction under Section 147.

The notification specifically states that the relaxation will be available to the payee only during those twenty consecutive tax years declared in Form 1(N).

For any other year, the payer becomes liable to deduct tax on the relevant payments under the normal provisions.

Does the IFSC Unit Get a Tax Exemption or Only TDS Exemption?

These are two different concepts.

Notification No. 80/2026 deals with TDS at the payment stage.

The underlying deduction available to qualifying IFSC units is dealt with separately under Section 147 of the Income-tax Act, 2025.

Therefore, the notification should not be described as simply making all IFSC income tax-free.

Instead, it provides relief from TDS on specified receipts where the relevant conditions are fulfilled.

The notification itself is issued under Section 400(1) read with Section 147.

Does No TDS Mean No TDS Reporting?

No.

This is another important compliance point.

Even where the payer does not deduct tax under Notification No. 80/2026, the payer must still furnish particulars of the payments on which tax was not deducted in its prescribed TDS statement.

The notification specifically requires reporting of these payments under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026.

Therefore:

No TDS ≠ No TDS reporting

The payment remains part of the payer's compliance trail.

When Can the Payer Stop Deducting TDS?

The payer should first receive the eligible IFSC unit's Form 1(N).

The notification states that the payer shall not deduct tax on a payment made or credited to the payee after the date of receipt of the copy of Form 1(N).

This creates an important practical distinction.

Suppose:

• Form 1(N) is received on 15 August 2026.

• A covered payment is made on 20 August 2026.

The payer can apply the notification to the covered payment, subject to all other conditions.

But if a covered payment was already made or credited before the payer received the declaration, the payer should not simply assume that the later receipt of Form 1(N) retrospectively cancels the earlier withholding obligation.

Example: Professional Fee Paid to IFSC FinTech Entity

Suppose an Indian company obtains eligible technical services from a FinTech Entity located in an IFSC.

Assume:

• Payee is an eligible IFSC FinTech Entity.

• Payment is technical/professional fee.

• The receipt is covered by Notification No. 80/2026.

• The IFSC entity has furnished valid Form 1(N).

• The payer receives the Form 1(N) before making the payment.

In this situation, the payer can apply the no-TDS treatment under the notification, provided all conditions are satisfied.

However, the payer still needs to report the non-deducted payment in the prescribed TDS statement.

Example: Dividend Paid to IFSC Finance Company

Suppose an Indian company pays dividend to an eligible IFSC Finance Company.

The notification specifically includes dividend income for a qualifying Finance Company.

If the Finance Company has provided the required Form 1(N) and the other conditions are satisfied, the payer can apply the TDS relief.

The payment must still be appropriately reported.

Example: Dividend Paid to an IFSC Entity Not Covered for Dividend

Suppose a payer makes a dividend payment to an IFSC entity that does not have dividend income listed against its category in Notification No. 80/2026.

The payer cannot simply say:

"The recipient is in GIFT City, so there is no TDS."

That would be incorrect.

The payment has to match the category-specific table in the notification.

If the payment does not fall within the specified receipt for that category, normal TDS provisions may apply.

Example: Interest Paid to an IFSC Banking Unit

Suppose a qualifying IFSC Banking Unit receives interest income on an External Commercial Borrowing or loan.

Interest on ECBs/loans is specifically listed for a Banking Unit.

If the other conditions are fulfilled, including the Form 1(N) requirement, the payer can apply the notification's no-TDS treatment.

The payer should nevertheless retain adequate documentation demonstrating:

• Recipient's IFSC status

• Nature of payment

• Form 1(N)

• Date of receipt of Form 1(N)

• Payment details

• Relevant TDS reporting

What If the Payment Is Not Listed in Notification 80/2026?

If a payment does not fall within the specified receipt category applicable to the recipient, the payer should not use Notification No. 80/2026 to justify nil TDS.

Instead, the payer should determine the applicable TDS provision under the Income-tax Act, 2025.

This is why businesses should not create a simple ERP rule saying:

"IFSC/GIFT City vendor = No TDS."

The correct approach is:

IFSC status + eligible category + specified receipt + valid Form 1(N) + applicable tax year = possible nil TDS

What If the IFSC Unit Does Not Provide Form 1(N)?

If the eligible IFSC unit does not provide the required Form 1(N), the payer should not assume that the notification can be applied automatically.

The notification makes Form 1(N) a specific condition and states that the payer's no-deduction treatment applies to payments made or credited after receipt of the declaration.

Therefore, in the absence of the required declaration, the payer should follow the normal TDS provisions unless another valid exemption or lower/nil deduction mechanism applies.

What If the Form 1(N) Is Received After Payment?

The timing matters.

The notification specifically refers to payments made or credited after the date of receipt of the Form 1(N) copy.

Therefore, businesses should maintain a record of the exact date on which the declaration was received.

A good internal control is to maintain:

What Are the Main Conditions for IFSC TDS Exemption?

Before applying the no-TDS treatment, the payer should verify the following:

The Recipient Must Be an Eligible IFSC Unit

The payee must fall within one of the categories listed in the notification.

The Unit Must Meet the Relevant Regulatory Requirements

The notification provides definitions and regulatory requirements for the specified categories. It also requires the IFSC unit to be registered under the relevant regulation or circular of the International Financial Services Centres Authority.

The Payment Must Be Specifically Covered

The nature of receipt must match the relevant row of the notification.

Form 1(N) Must Be Furnished

The IFSC unit must furnish the statement-cum-declaration to the payer.

The Relevant Tax Year Must Be Covered

The no-TDS relief is available only during the twenty consecutive tax years for which the Section 147 deduction is opted and declared.

The Payer Must Continue Reporting

The payer must report the payments on which tax was not deducted under the notification.

What Is the Role of Section 147 of the Income-tax Act, 2025?

Section 147 is central to the notification.

The notification links the TDS relief to the deduction available to qualifying IFSC units under Section 147.

Form 1(N) asks the IFSC unit to declare the period for which it has opted to claim the Section 147 deduction.

Therefore, the TDS exemption is not independent of the IFSC tax-deduction framework.

The unit's eligibility and chosen deduction period directly affect the availability of the TDS relief.

What Is the Role of Section 400(1)?

Notification No. 80/2026 has been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025.

Section 400(1) provides the legal basis under which the government can issue the notification for the specified TDS treatment.

Therefore, the notification operates within the statutory framework of the new Income-tax Act, 2025.

Is Notification 80/2026 Only for GIFT City?

The notification applies to qualifying International Financial Services Centre units.

GIFT City in Gujarat is India's prominent IFSC location, so many practical examples will involve entities operating from GIFT City.

However, the legal test is not simply:

"Is the company located in GIFT City?"

The relevant question is whether the recipient qualifies as the type of IFSC Unit covered by the notification and whether the payment matches the specified receipt.

Common Mistakes Businesses Should Avoid

Mistake 1: Treating Every GIFT City Payment as Nil TDS

Not every payment to a GIFT City entity qualifies.

Mistake 2: Ignoring the Recipient's Category

The notification contains 14 categories and different receipts for different categories.

Mistake 3: Accepting an Old Form 1(N) Without Checking the Tax Year

The declaration is linked to the relevant tax year and the opted deduction period.

Mistake 4: Stopping TDS Before Receiving Form 1(N)

The notification specifically links the no-deduction treatment to receipt of the declaration.

Mistake 5: Forgetting TDS Reporting

Even if no tax is deducted, the payment still needs to be reported as prescribed.

Mistake 6: Assuming the Exemption Is Permanent

The relief is tied to the twenty consecutive tax years for which the IFSC unit opts for the Section 147 deduction.

Mistake 7: Applying the Exemption to an Unlisted Receipt

If the payment is not listed against the relevant IFSC category, the payer should not automatically apply nil TDS.

IFSC TDS Exemption 2026: Compliance Checklist

Businesses making payments to IFSC units can use the following checklist:

1. Identify whether the recipient is an IFSC Unit.

2. Confirm the exact category of the IFSC unit.

3. Check whether the unit is covered by Notification No. 80/2026.

4. Identify the exact nature of the payment.

5. Match the payment with the relevant receipt listed in the notification.

6. Obtain Form 1(N).

7. Verify the tax year mentioned in Form 1(N).

8. Record the date on which Form 1(N) was received.

9. Apply nil TDS only where all conditions are satisfied.

10. Report the non-deducted payment in the prescribed TDS statement.

11. Keep Form 1(N) and supporting documents for records.

12. Re-check eligibility when the tax year changes.

Difference Between Normal TDS and Notification 80/2026

Is This a New Tax Holiday for GIFT City?

Not exactly.

The notification primarily deals with the TDS mechanism on specified payments.

The underlying tax deduction available to eligible IFSC units is governed by Section 147 of the Income-tax Act, 2025.

Therefore, it is more accurate to describe Notification No. 80/2026 as a TDS relief linked to the IFSC deduction regime, rather than saying that CBDT has introduced a completely new tax holiday.

What Should Accounts Teams Do Now?

Companies making payments to IFSC entities should review their vendor and payee master data.

For each IFSC counterparty, the accounts or tax team should record:

• IFSC unit name

• PAN

• IFSC category

• IFSCA registration/permission details

• Nature of service

• Form 1(N)

• Tax year

• Date Form 1(N) was received

• Applicable TDS treatment

• TDS statement reporting requirement

The company should also ensure that its ERP or accounting software does not automatically classify every GIFT City payment as exempt.

The exemption should be applied only after checking the specific notification requirements.

Frequently Asked Questions

What is Notification No. 80/2026?

Notification No. 80/2026 is a CBDT notification dated 10 July 2026 that provides no-TDS treatment for specified payments made to eligible IFSC units, subject to prescribed conditions.

From which date is Notification 80/2026 effective?

The notification is deemed to have come into force from 1 April 2026.

Is there no TDS on all payments made to IFSC units?

No. The relief applies only to specified receipts received by specified categories of IFSC units.

How many IFSC unit categories are covered?

The notification lists 14 categories of IFSC units.

What is Form 1(N)?

Form 1(N) is the statement-cum-declaration furnished by the eligible IFSC unit to the payer for claiming the prescribed TDS relief.

Is Form 1(N) required every year?

The notification requires the statement-cum-declaration to be furnished and verified for each relevant tax year within the twenty consecutive tax years for which the unit opts for the Section 147 deduction.

Does the payer have to report a payment if no TDS is deducted?

Yes. The notification specifically requires the payer to furnish particulars of payments on which tax was not deducted under the notification in the prescribed TDS statement.

Can the payer stop TDS before receiving Form 1(N)?

The notification provides that the payer shall not deduct tax on payment made or credited after the date of receipt of the Form 1(N) copy. Therefore, the declaration should be obtained before applying the no-TDS treatment.

Is dividend exempt from TDS for every IFSC unit?

No. Dividend is specifically listed for certain categories, including Finance Companies, Finance Units and Broker Dealers. It is not a blanket dividend exemption for every IFSC unit.

Is interest exempt from TDS for every IFSC entity?

No. The notification specifically covers interest on External Commercial Borrowings/Loans for the Banking Unit, Finance Company and Finance Unit categories. Other interest payments should not automatically be treated as exempt.

Are professional fees covered?

Professional fees are covered for specified categories, including Banking Units, Fund Management Entities, Investment Advisers, Custodians, Credit Rating Agencies, Investment Bankers and FinTech Entities, subject to the exact category and conditions in the notification.

What happens if the payment is outside the notification?

The payer should examine the normal TDS provisions under the Income-tax Act, 2025 and deduct tax where required.

Does the exemption continue forever?

No. The relief is available only during the twenty consecutive tax years for which the eligible IFSC unit opts for the Section 147 deduction.

Final Takeaway

CBDT Notification No. 80/2026 brings an important TDS compliance change for eligible IFSC units.

From 1 April 2026, specified payments received by qualifying IFSC units can be made without TDS, provided the conditions of the notification are fulfilled. The relief covers 14 categories of IFSC units and different types of receipts depending on the category of the recipient.

The most important compliance requirement is Form 1(N).

The IFSC unit must furnish the prescribed statement-cum-declaration to the payer, specifying the relevant twenty consecutive tax years for which it opts to claim the Section 147 deduction. The payer can apply the no-TDS treatment to payments made or credited after receiving the declaration, subject to the other conditions.

At the same time, businesses should remember:

No TDS does not mean no reporting.

The payer still has to report the relevant payments in the prescribed TDS statement.

Therefore, before treating any GIFT City or IFSC payment as nil TDS, businesses should verify four things:

Eligible IFSC Unit + Specified Receipt + Valid Form 1(N) + Correct Tax Year

Only after these conditions are satisfied should the no-TDS treatment under Notification No. 80/2026 be applied.