Provisions of Section 197A(1F) of the Income Tax Act, 1961 (the Act) empowers the central government to notify the transaction on which no deduction of tax shall be made, or deduction of tax shall be made at lower rate, over-ruling the provisions of “Chater XVII – Collection and Recovery of Taxes”.
In lieu of the aforementioned power, CBDT notifies the following categories of transactions wherein no withholding shall be made on payment made by any person (payer) to an IFSC Unit (payee):
| Sl. No. | International Financial Services Centre (IFSC Unit) (Payee) | Nature of receipt | Relevant TDS provisions as per Income- tax Act, 1961 |
| 1. | Banking Unit | Interest income on External Commercial Borrowings /Loans | Section 195 |
| Professional fees | Section 194J | ||
| Referral fees | Section 194H | ||
| Brokerage income | Section 194H | ||
| Commission income on factoring and forfaiting services | Section 194H | ||
| 2. | IFSC Insurance Intermediary office | Insurance commission | Section 194D |
| 3. | Finance Company | Interest income on External Commercial Borrowings /Loans | Section 195/194A |
| Dividend income | Section 194 | ||
| Commission income on factoring and forfaiting services | Section 194H | ||
| 4. | Finance Unit | Interest income on External Commercial Borrowings /Loans | Section 195/194A |
| Dividend income | Section 194 | ||
| Commission income on factoring and forfaiting services | Section 194H | ||
| 5. | Fund Management entity | Professional fee | Section 194J |
| 6. | Broker Dealer | Dividend | Section 194 |
| 7. | Investment advisor | Investment advisory fee | Section 194J |
| 8. | Registered Distributor | Distribution fee and Commission fee | Section 194H |
| 9. | Custodian | Professional fee | Section 194J |
| Commission fee | Section 194H | ||
| 10. | Credit rating agency | Credit rating fee | Section 194J |
| 11. | Investment banker | Investment banker fee | Section 194J |
| 12. | Debenture trustee | Trusteeship fee | Section 194J |
| 13. | International Trade Finance Service or “ITFS” | Commission income | Section 194H |
| 14. | FinTech Entity | Technical fee/Professional fee | Section 194J |
| Commission income | Section 194H |
Additionally, CBDT has prescribed a Form (statement-cum-declaration) through which ‘payee’ shall furnish details to the ‘payer’ for the previous year’s relevant to the ten consecutive assessment years for which the ‘payee’ opts for claiming deduction under Section 80LA of the Act in Form – 1.
Upon receipt of such declaration, ‘payer’ shall abstain from withholding of taxes on payment made or credited to ‘payee’ for the specified years. However, the ‘payer’ shall be liable to withhold taxes on payments as referred above for any other year not specified in the declaration.
It is imperative to emphasize that the ‘payer’ is required to report the particulars of the aforementioned payments in its quarterly statement (Form 26Q) on which withholding of taxes has not been effected in light of this notification.
Lakshay Prakash Jonwal, Direct Tax Associate, SW
