CBDT Notification 80/2026: No TDS on Specified Payments to IFSC Units From April 1, 2026 (Form 1(N) Explained)

Quick Summary: CBDT Notification 80/2026 at a Glance

• What changed: CBDT has notified that no TDS is to be deducted on specified payments made to eligible units in an International Financial Services Centre (IFSC), such as GIFT City, Gandhinagar. The relief is category-specific, not general: each of the 14 eligible categories has its own defined list of covered payments.
• The notification: Notification No. 80/2026 dated 10 July 2026, issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025.
• Effective date: The relief is deemed to have come into force from 1 April 2026, so it covers the whole of Tax Year 2026-27 (Assessment Year 2027-28).
• Who benefits: 14 categories of IFSC units, including banking units, finance companies, fund management entities, broker-dealers, investment advisers, custodians and FinTech entities.
• The catch: The payee IFSC unit must furnish a declaration in Form No. 1(N), the payer must still report the non-deducted payment in its TDS statement, and the payment must match the entry against that payee’s own category. Interest is covered only for a Banking Unit, Finance Company or Finance Unit, and only interest on External Commercial Borrowings and loans.

What Notification 80/2026 Actually Says

If you make payments to a unit in GIFT City IFSC, or you run one, this is the notification to read this quarter. On 10 July 2026 the Central Board of Direct Taxes (CBDT) issued Notification No. 80/2026, providing that no tax shall be deducted at source on specified payments made to eligible IFSC units, subject to conditions. This is the third IFSC-focused TDS relief of the season, following the aircraft and ship lease-rent exemptions we covered in CBDT Notification 74/2026 and 75/2026. Notification 80/2026 is the broadest of the three because it covers everyday operating receipts, not just lease rentals.

The legal architecture matters, so read it carefully. The exemption is granted under Section 400(1) of the Income-tax Act, 2025 (the Board’s power to relax the rigour of a provision) read with Section 147 (the deduction available to units located in an IFSC, the successor to the old Section 80LA of the Income-tax Act, 1961). The payments in question would otherwise attract withholding under the relevant clauses of Section 393, which is the consolidated “Tax to be deducted at source” provision of the 2025 Act. In plain English: these receipts are normally subject to TDS under Section 393, but because the IFSC unit already enjoys a tax deduction under Section 147, deducting tax at source on its receipts only creates refund friction. Notification 80/2026 removes that friction at source.

Which IFSC Units Are Covered? (The 14 Categories)

The no-TDS benefit applies to a payee that is a “specified unit” operating in an IFSC and registered with the International Financial Services Centres Authority (IFSCA). The notification lists 14 categories of eligible units:

If the payee sits outside these categories, Notification 80/2026 does not apply and the payer must deduct tax under the normal Section 393 rules.

Which Payments Get the No-TDS Relief? (The Per-Category Matrix)

This is the part every accounts payable team needs to circulate, and it is the part most commentary gets wrong. Notification 80/2026 does not publish one general list of exempt payments that applies to every IFSC unit. It publishes a matrix. Each category of IFSC unit has its own specified nature of payments, and the no-TDS relief applies only where the payment you are making matches the entry against that payee’s category.

Read the matrix the way you would read a schedule of rates. Find your payee’s category first, then check whether your payment appears in that row. If it does not appear, you deduct.

The interest position, stated precisely

Interest on External Commercial Borrowings and loans, and only where the IFSC unit receiving it is a Banking Unit, a Finance Company or a Finance Unit. No other category has an interest entry, and no category has a general interest exemption. Interest that is not ECB or loan interest, for example interest on an FCNR-B-backed facility taken by an individual borrower, remains subject to normal withholding.

The practical consequence is worth spelling out, because getting it backwards is expensive. If you treat the interest entry as an illustration rather than a boundary, you will stop deducting on interest the notification never covered, and you will carry a failure-to-deduct exposure with interest and disallowance risk attached. The entry is a boundary.

Three traps in the matrix

• Dividend is not general either. A dividend paid to an IFSC unit is covered only where the payee is a Finance Company, a Finance Unit or a Broker Dealer. Pay a dividend to any other category of IFSC unit and normal withholding applies.
• Professional fees are category-bound. The professional fees entry appears against the Banking Unit, Fund Management Entity, Custodian and FinTech Entity rows. Paying professional fees to, say, a Debenture Trustee does not attract the relief, because the Debenture Trustee row covers trusteeship fees.
• Insurance commission is a single-category entry. It is available only where the payee is an IFSC Insurance Intermediary Office.

The common thread is that the notification maps each category to the receipts that category is licensed to earn. It is not a blanket exemption on financial-sector payments. If your payment does not sit in your payee’s row, deduct tax as usual under the normal Section 393 rules.

The Condition That Trips People Up: Form No. 1(N)

The relief is not automatic. The payer can stop deducting TDS only if the payee IFSC unit furnishes a declaration in Form No. 1(N). Here is the mechanism:

1. The IFSC unit is entitled to a deduction under Section 147 for a block of 20 consecutive tax years, out of its first fifteen or so years of operation, that it chooses.
2. To claim the no-TDS benefit, the unit files Form 1(N) declaring the tax years for which it has opted for the Section 147 deduction.
3. A separate verified declaration is required for each relevant tax year, and the no-TDS benefit is available only during those opted-in years.
4. Outside that declared 20-year window, the notification does not apply and the payer reverts to normal TDS.

For the payer, the practical trigger is simple: collect a valid Form 1(N) before you stop withholding. No Form 1(N) on file means you deduct as usual, because you cannot demonstrate the payee’s eligibility if questioned.

The Reporting Trap: No TDS Does Not Mean No Reporting

This is the single most important compliance point, and it is where good intentions go wrong. Not deducting tax is not the same as not reporting the transaction. The notification requires the payer to furnish particulars of all such non-deducted payments in the prescribed TDS statement. In practice this means reporting the payment under the correct nil-rate or exempt code in the quarterly TDS return, the same statements we mapped in New TDS and TCS Return Forms From FY 2026-27. Skipping the payment from the return altogether can expose the payer to a “failure to furnish correct information” argument, even though no tax was short-deducted.

Who Is Affected, and What Each Stakeholder Should Do

For Indian companies and borrowers paying an IFSC unit

Review your vendor and lender master. Any interest, fees, brokerage, commission or advisory payment routed to a GIFT City counterparty is a candidate for zero withholding from 1 April 2026, but only against a Form 1(N). Update your TDS logic so these payments flow to a “no-deduction, still-reported” bucket rather than being deducted and later refunded.

For IFSC units (the payees)

Confirm your Section 147 opt-in years and issue Form 1(N) declarations to your Indian payers proactively. Every rupee of TDS your payers stop deducting is working capital you keep rather than lock up in a refund cycle. Maintain a register of which payers hold a current declaration.

For CAs and finance teams

This notification is retrospective to 1 April 2026. If your client already deducted TDS on covered payments to an IFSC unit between April and July 2026, evaluate whether the deduction can be regularised and whether the IFSC unit should claim the credit or seek a refund. Flag it before the first-quarter TDS return is finalised.

Compliance Checklist

1. Identify every payee that is an IFSC unit and confirm it falls in one of the 14 categories.
2. Obtain a valid Form 1(N) declaration for the relevant tax year before stopping deduction.
3. Confirm the unit is registered with IFSCA and continues to maintain IFSC status.
4. Map the specific payment to the entry against the payee’s own category in the matrix above. A payment that is covered for one category is not automatically covered for another.
5. Configure your accounting or ERP TDS module for a no-deduction but reportable code.
6. Report the non-deducted payment in your quarterly TDS statement.
7. Review April to July 2026 deductions already made and regularise them.
8. Diarise the end of the payee’s opted-in 20-year window so deduction resumes correctly afterwards.

Frequently Asked Questions

Does the notification exempt all interest paid to an IFSC unit from TDS?

No, and this is the most commonly mis-stated point. The notification carries an interest entry against only three of the fourteen categories, namely the Banking Unit, the Finance Company and the Finance Unit, and in each case the entry is confined to interest on External Commercial Borrowings and loans. There is no general interest exemption for any category. Interest of a different character, such as interest on an FCNR-B-backed facility availed by an individual borrower from an IFSC banking unit, is outside the notification and normal withholding continues to apply.

My payee is an IFSC unit and my payment is on the notification somewhere. Is that enough?

No. The test is two-limbed. The payee must fall in one of the 14 categories, and the payment must match the entry against that specific category. A dividend paid to a Broker Dealer is covered; the same dividend paid to a Credit Rating Agency is not. Check the row, not just the list.

Does Notification 80/2026 exempt the IFSC unit from tax, or only from TDS?

Only from TDS at source. The IFSC unit’s income is dealt with separately under Section 147 of the Income-tax Act, 2025 (the successor to Section 80LA). The notification simply removes the cash-flow drag of having tax withheld on receipts that are already covered by that deduction.

From when does the no-TDS relief apply?

The notification is dated 10 July 2026 but is deemed to have come into force from 1 April 2026. It therefore covers payments made throughout Tax Year 2026-27.

What happens if my company already deducted TDS on such a payment in April to June 2026?

Because the relief is retrospective, you should evaluate regularising the earlier deduction. The IFSC unit can claim credit for the tax already deducted while you correct your withholding going forward. Do this before the Q1 TDS statement is finalised.

Can the payer stop deducting without any documentation?

No. The payer needs a valid Form 1(N) from the IFSC unit for the relevant tax year. Without it, deduct tax under the normal Section 393 rules and keep the withholding.

Do I still need to report the payment if no tax was deducted?

Yes. The notification specifically requires the payer to report all non-deducted payments in the prescribed TDS statement. No-TDS is not no-reporting.

The Bottom Line

Notification 80/2026 is a genuine ease-of-doing-business measure for GIFT City. It stops the pointless cycle of deducting tax on receipts that an IFSC unit will only reclaim anyway. But the relief is conditional: Form 1(N) in, and the payment still reported out. Treat it as a documentation-and-reporting exercise, not a licence to drop the transaction from your returns.

Disclaimer: This article is for general information based on CBDT Notification No. 80/2026 dated 10 July 2026 and the Income-tax Act, 2025, as understood at the date of publication from official and reputable public sources. Section numbers refer to the Income-tax Act, 2025, in force from 1 April 2026. It is not legal, tax or professional advice. The per-category payment matrix above reflects the category-wise schedule in the notification. Please verify the exact text of the notification and Form 1(N) against the primary source for your specific category before acting, and consult a professional.

Navigating GIFT City structuring, ECB flows or IFSC tax positions? Tax Update India helps founders, CFOs and finance teams get cross-border and IFSC compliance right the first time. Talk to an Expert and get clarity on your specific situation.

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CA Adityavikram Banka

Founder & Director at A S Banka Advisors Private Limited

The author is Founder of A. S. Banka Advisors Private Limited & Partner at Dhiraj & Dheeraj.

You can reach out to the author on : info@asbanka.com

www.asbanka.com

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