07th March, 2024: CBDT has issued a notification listing the services and recipients whose TDS is not required to be deducted during the period of exemption u/s 80LA of Income Tax Act, 1961.
Background:
Section 80LA(1A) of the Income Tax Act, 1961 ('Act'), exempts Units of IFSC for any 10 consecutive years out of 15 years from 100% taxation on specified incomes. Albeit, there was no specific exemption on tax withholding on the incomes of the Units. This CBDT notification now addresses this exemption on tax withholding.
List of exemptions for incomes, payees and TDS categories:
IFSC Unit (Payee) | Nature of Income | Section of TDS |
|---|---|---|
Banking Unit | Interest income on ECB/ Loans | 195 |
Professional fees | 194J | |
Referral fees | 194H | |
Brokerage income | 194H | |
Commission income on factoring/forfaiting | 194H | |
IFSC Insurance Intermediary office | Insurance commission | 194D |
Finance Company | Interest income on ECB/ Loans | 195/194A |
Dividend income | 194 | |
Commission income on factoring/forfaiting | 194H | |
Finance Unit | Interest income on ECB/ Loans | 195/194A |
Dividend income | 194 | |
Commission income on factoring/forfaiting | 194H | |
Fund Management entity | Professional fee | 194J |
Broker Dealer | Dividend | 194 |
Investment advisor | Investment advisory fee | 194J |
Registered Distributor | Distribution fee & Commission fee | 194H |
Custodian | Professional fee | 194J |
Commission fee | 194H | |
Credit rating agency | Credit rating fee | 194J |
Investment banker | Investment banker fee | 194J |
Debenture trustee | Trusteeship fee | 194J |
ITFS | Commission income | 194H |
FinTech Entity | Technical fee/Professional fee | 194J |
Conditions to avail TDS exemption:
The ‘payee’ shall –
(i) furnish a declaration in Form No. 1 to the ‘payer’ giving details of years for which the ‘payee’ opts for claiming deduction under section 80LA of the Act and
(ii) such declaration shall be furnished for each year for which the ‘payee’ opts for claiming deduction under section 80LA of the Act.
The ‘payer’ shall –
(i) not deduct tax on payment made or credited to ‘payee’ after the date of receipt of declaration in Form No. 1 from the ‘payee’; and
(ii) also furnish the particulars of all the payments made to ‘payee’ on which tax has not been deducted in view of this notification in the TDS return.
The above relaxation shall be available to the ‘payee’ only during the years relevant to the ten consecutive assessment years as declared by the ‘payee’ in Form No. 1 for which deduction under section 80LA is being opted. The ‘payer’ shall be liable to deduct tax on payments as referred above for any other year.
This shall come into force from 1st day of April, 2024.
Conclusion:
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