New Tax Rule: Avoid Tax Deduction on Purchases from IFSC Sellers
By: Admin
Date: January 6, 2025
Categories: TAX News
Reading Time: 4 Min
The Ministry of Finance has introduced a new rule, effective January 1, 2025. This rule allows buyers to avoid tax deductions on payments made to sellers operating within International Financial Services Centres (IFSC), provided they adhere to specific guidelines.
Key Provisions of the New Rule
1. Seller’s Declaration
Sellers are required to submit a statement-cum-declaration in the prescribed format (Form No. 1). This document must detail the previous years for which they have claimed tax deductions under subsections (1A) and (2) of Section 80LA of the Income Tax Act.
In addition, they must verify the declaration in line with the government’s specified guidelines. By doing so, sellers ensure they meet the compliance standards necessary to benefit from this rule.
2. Buyer’s Responsibility
Once the seller provides the declaration, buyers no longer need to deduct tax on the payments made to these sellers. However, buyers must ensure they report all such payments in their statement of tax deduction, as outlined under subsection (3) of Section 200 of the Income Tax Act. Moreover, they must comply with Rule 31A of the Income Tax Rules, 1962, to maintain proper records and transparency.
Simplified Compliance for IFSC Sellers
This new rule significantly eases tax compliance for businesses within the IFSC. Specifically, it:
- Eliminates the need for tax deduction on eligible transactions, thereby reducing complexity.
- Reduces the administrative burden on buyers, making the process more efficient.
- Encourages higher volumes of trade in the IFSC, which in turn supports its growth as a global financial hub.
As a result, businesses are expected to find it more convenient to operate within the IFSC, boosting trade and investment opportunities.
Notification Highlights
The notification underscores the government’s commitment to simplifying tax procedures. Furthermore, it highlights efforts to enhance the ease of doing business within the IFSC. Consequently, the policy is likely to attract more companies to these financial zones.
This change represents a significant step toward fostering seamless transactions while incentivizing businesses to fully leverage the benefits of the IFSC framework. By doing so, the government aims to strengthen India’s position as an international trading and financial center.
