Unlocking Tax Benefits: IFSC Unit Deductions Explained

INTRODUCTION

In this comprehensive article, aim is to delve deep into the concept of “IFSC UNIT” and explore the intricacies of the DEDUCTION provided by the Income Tax Act. Understanding which income qualifies for deduction and the associated tax benefits is crucial for both taxpayers and tax professionals. This knowledge ensures accurate tax reporting and compliance.

What is IFSC

International Financial Service Centre serves as a Unit which caters to the Financial services, asset management, wealth management, risk management services for Non-Resident or other corporation and government and to residents, to the extent permissible under the current regulations, in a currency other than the domestic currency (Indian rupee) of the location where the IFSC is located.

An IFSC seeks to bring to India, those types of financial services and transactions that are currently carried on outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions.

It is treated at par with the Offshore Branch of any Bank incorporated outside India. Hence IFSC unit is not subject to CRR or SLR stipulations of RBI. For most purposes, the IFSC Banking Units (IBU) will be treated on par with a foreign branch of an Indian bank, like the application of prudential norms, the 90 days’ Income Recognition Asset Classification and Provisioning norms, These units can be set up in Special Economic Zone like, for example GIFT International Finance Services Centre (GIFT City) is a special economic zone (SEZ) located in the Indian state of Gujarat.

The Central Government may approve the setting up of an International Financial Services Centre in a Special Economic Zone and prescribe the requirements for setting up and operation of such Centre. Provided that the Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.

Regulating Authority of IFSC

The International Financial Services Centres Authority established under sub-section (1) of section 4 of the International Financial Services Centres Authority Act, 2019, shall be the Regulating Authority of IFSC units.

DEDUCTION AVAILABLE TO IFSC UNIT UNDER THE INCOME TAX ACT

Where the Gross Total Income of the IFSC Unit includes income which is as follows:

• Income from an offshore Banking Unit in a Special Economic Zone
  (offshore Banking unit refer to Branches of Bank located outside of its home country for e.g Landon based bank having a Branch located in Delhi).
• Income from carrying on Banking business as prescribed under the Banking regulation Act, 1949 with any undertaking located in SEZ or any other undertaking which develop, develop and operate, or operate and maintain a SEZ.
• Income from any unit of IFSC from its business for which it has been approved.
• Income from the transfer of an asset, being an aircraft or a ship, which was leased by a IFSC unit to a person, subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024

Deduction- Deduction under Sec 80LA of the Income tax Act shall be available only in respect of the income mentioned above subject to the Report in form No. 10CCF furnished by a Chartered accountant & copy of registration/permission obtained under the International Financial Services Centres Authority Act, 2019/ Banking regulation Act, 1949.

Quantum & period of deduction-

100% Deduction shall be available in respect of above income for a period of 10 assessment year out of the block of 15 assessment years beginning with the assessment year in which such registration was obtained.

FURNISHING OF STATEMENT IN CASE OF REMITTANCE MADE TO NON‑RESIDENT OR TO FOREIGN COMPANY

FORM 15CA

• Filing of Form 15CA- Where the payment is made to a Non-Resident or to a foreign company which is chargeable to tax under the provision of the Income Tax Act , then the IFSC Units shall be required to furnish Form 15CA as follows:

Part-A – where the amount of payment or aggregate of payments in a financial year (FY) does not exceed INR 500,000;

Part-B-  where a certificate/order under Sec 195(2)/1 95(3)/1 97 has been obtained;

Part-C-  where certificate from chartered accountant is required in Form No. 15CB.

• Exclusion of filing Form 15CA- Where the remittance is made by IFSC Units which is NOT chargeable to tax & which is of the nature of remittance specified in the List of Rules 37BB, then it is not required to furnish Form 15CA “ Part D”.

FORM NO. 1 5CD

That unit of an IFSC shall furnish electronically quarterly statement in respect of all remittances (whether chargeable to tax or not) to non­resident (not being a company) or to a foreign company in Form No. 15CD within 15 days from the end of the quarter of the FY to which such statement relates to the Principal Director General of Income tax or Director General of Income Tax.

It shall come into effect from 1^st January, 2024.

Conclusion: Navigating the tax landscape for IFSC Units requires a thorough understanding of the deductions provided by the Income Tax Act. This guide serves as a valuable resource for taxpayers and professionals, shedding light on eligible incomes, deduction criteria, and the procedural aspects of filing Form 15CA and Form 15CD. Staying abreast of these regulations ensures compliance and optimizes tax benefits for entities operating within IFSCs.