Seventeen types of payments made to seven categories of businesses working in the International Financial Services Centre (IFSC) have been exempted from Tax Deducted at Source (TDS), the Income Tax Department has said.
The exemption will be applicable from July 1, a notification by the Finance Ministry said.
“The relaxation provided in this notification shall be available to the payee only during the said previous 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 and the payer shall be liable to deduct tax on payments as referred above for any other year. The relaxation provided in this notification is in respect of the income from any Unit in an International Financial Services Centre, from its business for which it has been approved for setting up in such a Centre in a Special Economic Zone,” the notification added.
Exemption will be available for payments towards ‘Professional or Consulting or Advisory fees’ made to BATF (Book-keeping, Accounting, Taxation and Financial Crime Compliance Services) Service Provider. In case of broker dealer, no TDS will be applicable on payment made by Recognised Stock Exchanges Commission Incentives. When a Finance Company will receive payment for interest on account of lease, freight charges or hire charges, there will be no TDS.
In case of Fund Management Entity, payment for professional or technical services fees, interest income and penalty levied on clearing members will not attract TDS. Similar treatment will be made to professional or technical or contractual fees by the Recognised Depository. Similarly, a Recognised Stock Exchange will get benefit of no TDS on Professional or Technical Services fees, Rent for Data Centres and Interest Income.
The notification has listed some obligation as part of the payee and the payer to avail TDS exemption. The payee will be required to furnish a statement-cum-declaration in Form No. 1 to the payer, giving details of previous years relevant to the ten consecutive assessment years for which the payee opts for claiming deduction. Accordingly, the payer will not deduct tax on payment made or credited to the payee, after the date of receipt of copy of statement- cum-declaration in Form No. 1 from the payee.
The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
Units working in IFSC are considered as exporters and rules saying that no tax should be exported could be the reason for granting the exemption to various such businesses.